Tiger Airways (TGR) carried 629K passenger in May, up 36.4% YoY, mainly on the back of TGR SG’s continued strong performance into the new quarter (1QFY14). Passenger traffic for TGR SG grew 18.9% YoY although passenger load factor (PLF) fell marginally by 0.2ppt to 84.0% following a slightly larger increase in capacity growth (+18.6% YoY). Nonetheless, we are encouraged by the eighth straight consecutive month of YoY passenger traffic increases for TGR SG, and maintain our optimism that PLF should stay stable as TGR SG enters the busier Jun holidays.
Recent IPO activity signals confidence in budget travel growth
In terms of industry dynamics, Asia Pacific remains a high growth region for the aviation industry, and recent IPO announcements by AirAsia X (the long-haul arm of AirAsia) and Nok Airlines (the Thaibased budget carrier) reinforce this perspective. While these carriers will compete directly with TGR SG, we believe that the market is large enough to absorb the growth in capacity as aircraft per capita remains lower in the region versus the more developed markets of North America and Europe, and increases in consumer demand for air travel (resulting from greater affluence) should outpace the growth in aircraft deliveries to the region.
Reduced drag from associates?
As we are in the dry season for Indonesia and entering the summer holidays for the Philippines, we are hopeful that TGR's two associate airlines, Mandala and SEAir, will be able to capitalise on the increased travel and taper their operating losses.
Revisit a proven carrier
TGR’s share price has fallen by more than 6% in light of the market correction but we remain unfazed by this decline. We reiterate our BUY rating on TGR with an unchanged fair value estimate of S$0.79 as prospects remain positive and industry dynamics continue to favour budget over premium carriers.
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