Tiger Airways

OCBC on 14 Mar 2012

Tiger Airways (TGR) this week reported an 81% passenger load factor (PLF) in Feb 2012. However, TGR’s decent PLF in Feb 2012 can be primarily attributed to a significant seat capacity reduction of 17% YoY to 474k, as number of passengers flown fell 19% YoY to 384k. Management said demand for its flights was weak in Feb 2012 because 1) the Chinese New Year holiday fell in Jan this year, and 2) Tiger Airways Australia in Feb 2012 was still operating at a less than optimal capacity. Furthermore, SGD-adjusted jet fuel prices (JETKSIFC Index) have, thus far in 4QFY12, averaged 3% higher QoQ. We maintain our SELL rating and fair value estimate of S$0.60/share on TGR due to the less than encouraging recent operating statistics and persistently high jet fuel prices.

81% PLF – result of significant capacity reduction
Tiger Airways (TGR) this week reported an 81% passenger load factor (PLF) in Feb 2012. This is only the second time it has recorded a PLF of more than 80% since the grounding of its Australian operations last year. However, TGR’s decent PLF in Feb 2012 can be primarily attributed to the significant seat capacity reduction of 17% YoY to 474k, as number of passengers flown fell 19% YoY to 384k. Management said demand for its flights was weak in Feb 2012 because 1) the Chinese New Year holiday fell in Jan this year, compared to Feb in 2011, and 2) Tiger Airways Australia in Feb 2012 was still operating at a less than optimal capacity. It is also notable that, for the third consecutive month, TGR has retrospectively adjusted its comparative year-ago monthly operating statistics. TGR said these adjustments are the result of reclassification of operating statistics, without providing further details. While the adjustments are not significant, TGR’s YoY operating statistics comparison will seem a tad worse when matched against previously announced numbers.

High jet fuel prices still on uptrend
Thus far in 4QFY12, SGD-adjusted jet fuel prices (JETKSIFC Index) have averaged 3% higher QoQ. In fact, it has been two and a half years since quarterly average jet fuel prices have seen the current level. With fuel costs contributing to 40-45% of total expenses, persistently high jet fuel prices are likely to continue to depress TGR’s profitability.

Maintain SELL
Despite recent positive developments such as 1) TGR’s 33%-owned joint-venture PT Mandala Airlines receiving its Air Operator’s Certificate and 2) Tiger Airways Australia receiving the approval from authorities to increase daily flying to 64 sectors, we maintain our SELL rating and fair value estimate of S$0.60/share on TGR. This is due to the less than encouraging recent operating statistics, which perhaps suggest the market has been overly optimistic with TGR’s turnaround, and persistently high jet fuel prices, which admittedly are not within TGR’s control.

Tiger Airways

DBS Group Research on 22 Feb 2012

TIGER Airways announced that the Indonesian regulator has reactivated PT Mandala Airlines' Air Operator's Certificate (AOC). With the resumption of Mandala flights by April 2012, Tiger will lease three aircraft to Mandala initially, rising to ten by the end of FY2013.

Given that Indonesian regulations require new airlines to have a fleet of 10 aircraft within its first year of operations, this fits in nicely with Tiger's plans.

Air Australia's bankruptcy also comes at a good time for Tiger. While Air Australia was a small player operating seven aircraft mainly out of Brisbane, its exit could lead to higher loads and yields on the lucrative Melbourne-Brisbane sector.

There is now a chance for Tiger to base its aircraft in Brisbane, with the additional catchment area of Gold Coast as well. Tiger is currently operating seven aircraft out of Melbourne and is actively looking for a second base in Australia to expand routes.

If all the above falls into place and Tiger Singapore does not add any new capacity in FY2013, we reckon demand should catch up in Singapore.

Given the improving execution and better visibility, we upgrade the stock to 'buy', with a higher TP of $1.01.
BUY

Tiger Airways

DBS VICKERS RESEARCH on 1 Feb 2012

TIGER Airways reported higher than expected net loss after tax of $17.4 million in Q3 2012, compared to a profit of $22.5 million in Q3 2011.

Despite the third quarter (October-December) being the traditional high demand period for air travel, Tiger Airways was unable to turn around both its operations; Tiger Australia reported operating losses of $8.6 million while Tiger Singapore reported operating losses of $4.8 million in Q3 2012. Tiger Airways also recorded a $7 million provision charge on dues from Philippine partner SEAir.

The Australian operations continue to be impacted by under-utilisation of fleet as the airline has been flying a reduced number of sectors since the lifting of its suspension. Of the 10 aircraft stationed in Australia, we reckon only about six are necessary currently.

But efforts in Australia are bearing fruit, as they have received permission to fly 38 sectors now (up from 32) and are looking to establish a second base in Australia by mid-2012.

Over in Singapore, Tiger ramped up capacity by almost 70 per cent in Q3 2012, but the demand on new routes and frequencies has likely been slower than expected.

Apart from the high fixed costs, high fuel costs continued to dent profitability. This will continue to impact Tiger's profitability in the coming quarters as well.

While the group is focused on rebuilding its business in Australia under a new management team and looking to deploy additional aircraft to its new 33 per cent-owned Indonesian associate, PT Mandala Airlines, we believe profitability is still some way off. Maintain 'hold' with a target price of $0.70.
HOLD

Tiger Airways

OCBC Research on 31 Jan 2012

Tiger Airways (TGR) last night reported a 1% YoY decline in its 3QFY12 revenue to S$168.4m and a net loss of S$17.4m. Management attributed the net loss to high fuel prices and restrictions on its Australia operations imposed by the Australian aviation authorities. In QoQ comparison, revenue grew 53% while net loss narrowed by 65% – a marked improvement from the suspension ravaged 2QFY12. Both TGR’s Australia and Singapore operations also reported improved numbers, albeit still incurring operating losses. Consensus’ estimate of TGR’s FY12 losses will likely have to increase, causing downward pressures on TGR’s share price. We lower our fair value estimate of TGR to S$0.60/share, derived from a P/B multiple of 1.9x, and downgrade it to SELL.

Revenue fell and bigger net loss than expected.
Tiger Airways (TGR) last night reported a 1% YoY decline in its 3QFY12 revenue to S$168.4m and a net loss of S$17.4m, from a net profit of S$22.5m a year ago. Management attributed the loss to high fuel prices and restrictions on its Australia operations imposed by the Civil Aviation Safety Authority of Australia (CASA). In 3QFY12, TGR also made a provision for doubtful receivables of S$7.0m, without which its net loss will be closer to our previous net loss estimate of S$10.6m.

Net loss narrowing but not fast enough.
In QoQ comparison, revenue grew 53% while net loss narrowed by 65% – a marked improvement from the suspension ravaged 2QFY12. Geographically, TGR’s Australia and Singapore operations reported operating losses of S$8.6m and S$4.8m respectively, which are much improved from the operating losses of S$27.2m and S$12.0m in 2QFY12. However, TGR has already accumulated a net loss of S$87.9m in 9MFY12, more than consensus’ full-year net loss estimate of S$75.2m. Furthermore, TGR is unlikely to turn profitable in 4QFY12 because jet fuel prices (JETKSIFC Index) adjusted to SGD have averaged even higher in 4QFY12 than in 3QFY12.

Earnings downgrade expected – downgrade to SELL.
TGR has recently announced positive developments such as its passenger load factor recovering to more than 80% in the month of Dec 2011 and alleviated its overcapacity issue by deploying a recently delivered aircraft to its new joint-venture, a 33%-owned PT Mandala Airlines in Indonesia. However, high jet fuel prices have curtailed TGR’s recovery. Consequently, consensus’ estimate of TGR’s FY12 losses will likely have to increase, causing downward pressures on TGR’s share price. We lower our fair value estimate of TGR to S$0.60/share, derived from a P/B multiple of 1.9x, and downgrade it to SELL.