Tiger Airways

OCBC on 20 Sept 2012

While new Tiger Airways’ (TGR) CEO, Mr. Koay Peng Yen, outlined a new initiative to focus on customer satisfaction and TGR’s passenger data for Aug revealed MOM increases of 4% and 5% for the number of passengers carried on its Singapore and Australian operations respectively, a full recovery for TGR remains an optimistic proposition. Tiger Australia currently faces a challenging environment with an influx of excess capacity in the market following Qantas’s plans to increase capacity in response to Virgin’s additions. With profitability for Tiger Australia negatively impacted and fuel prices creeping upwards, we lower our projections accordingly. Therefore, our fair value estimate falls to S$0.81/share from S$0.83/share previously. Downgrade to HOLD.

New Tiger CEO
We attended a briefing to meet the new Tiger Airways’ (TGR) CEO, Mr. Koay Peng Yen, where he outlined a new initiative to focus on customer satisfaction. After the spate of bad publicity related to its Australian operations and more recent displeasures voiced in the forum pages, the move represents a significant – and more importantly, welcomed – shift for TGR. Some of the new initiatives include a mobile application for booking of flights, online check-in services and pre-ordering of meals.

Recovery hinges on Australia
While TGR’s passenger data for Aug revealed MoM increases of 4% and 5% for the number of passengers carried on its Singapore and Australian operations respectively, a full recovery for TGR remains an optimistic proposition. As Tiger Australia ramps up its operations to a management indicated 64 sectors/day from its current 56 sectors/day (prior year: 60 sectors/day), it faces a challenging environment with an influx of additional capacity from competitors. Qantas will increase capacity in response to Virgin’s additions in order to maintain its 65% market share, and this will impact the profitability for Tiger Australia and the prices that they can command.

Reduce our optimism
These developments in Australia have dampened our previously stated optimism over the pace of TGR’s recovery. Coupled with the recent fuel price increases, we have inevitably lowered our projections. Although we still expect TGR to turn profitable by 3Q13 and our FY13F revenue increases by 3% to account for the higher passenger traffic from the Australia ramp up, our EBITDA falls to S$35.8m from S$48.9m previously. Our FY13F PATMI now projects a small loss of S$2.2m (+S$10.8m previously).

Downgrade to HOLD at S$0.81
Since our upgrade in late Jul 2012, the counter has appreciated by 10% and the upside potential has diminished. Factoring in the challenges ahead for TGR, we decrease our fair value estimate to S$0.81/share, from S$0.83/share previously. Downgrade to HOLD.