Tiger Airways Holdings’ (TR) 4QFY14 revenue declined 35.1% YoY to S$161.9m due to the exclusion of Tigerair Australia, which ceased to be a subsidiary. Despite deconsolidation of loss-making Australia unit’s results, S$12.7m operating profit in 4QFY13 turned into S$24.2 loss in 4QFY14 as weakness emerges in its main Singapore operations. 4QFY14 PATMI loss increased by 5.2x from S$15.4m to S$95.5m largely due to: 1) S$25.0m provision for onerous aircraft leases (grounding of eight aircrafts), and 2) S$47.4m losses in associates. Management will be focusing on managing capacity and optimising yield ahead, which includes: 1) grounding eight aircrafts in FY15, and 2) re-assessing its stake in Tigerair Mandala. However, the still-intense competition in the LCC industry is likely to check TR’s performances ahead. As we incorporate the latest results, we maintain SELL and lower our FV estimate from S$0.38 to S$0.30.
Results continue to see red
Tiger Airways Holdings’ (TR) 4QFY14 revenue came in 4.3% above expectations at S$161.9m while operating loss of S$24.2m is 62.5% worse than expectations. On a YoY basis, 4QFY14 revenue declined 35.1% due to the exclusion of Tigerair Australia, which ceased to be a subsidiary from 8 Jul-13. Despite deconsolidation of loss-making Australia unit’s results, S$12.7m operating profit in 4QFY13 turned into S$24.2 loss in 4QFY14 as weakness emerges in its main Singapore operations. 4QFY14 PATMI loss increased by 5.2x from S$15.4m to S$95.5m due to: 1) S$25.0m provision for onerous aircraft leases (grounding of eight aircrafts), and 2) S$47.4m losses in associates. On a full year basis, Tigerair Singapore reported operating loss of S$58.6m in FY14, a 180-degree turn from its S$57.1m operating profit in FY13. This is due to the familiar story of weaker yield (-9.9% to 6.74S-cent/rpk) and lower load factor (-6.2ppt to 78.1%), in turn caused by overcapacity and insensible competition. Together with exceptional items (i.e. impairments and provisions) and losses from associates, TR’s net loss widened from S$45.4m in FY13 to S$223.0m in FY14.
Switching from growth-mode to profitability-mode
Management will be focusing on managing capacity and optimising yield ahead. First, eight aircrafts will be grounded in FY15 (five in Indonesia and three in Philippines). We welcome this move as it will help to reduce operating costs. However, if the grounded aircrafts are unable to be re-deployed or sub-leased to other airlines for a prolonged period, we think further provisions will have to be made. Second, TR has divested its stakes in loss-making Tigerair Australia and Tigerair Philipines in FY14, and is re-assessing its stake in Tigerair Mandala. Third, capacity expansion is checked as orders for nine A320s in 2014-2015 were cancelled, replaced by deliveries further away in 2018-2025.
No turnaround in sight
We like TR’s focus on managing over-capacity and asset-light strategy of network extension through alliances (vs. owning direct stakes previously). However, the still-intense competition in the LCC industry is likely to check TR’s performances ahead. As we incorporate the latest results, we maintain SELL and lower our FV estimate from S$0.38 to S$0.30.
Tiger Airways Holdings’ (TR) 4QFY14 revenue came in 4.3% above expectations at S$161.9m while operating loss of S$24.2m is 62.5% worse than expectations. On a YoY basis, 4QFY14 revenue declined 35.1% due to the exclusion of Tigerair Australia, which ceased to be a subsidiary from 8 Jul-13. Despite deconsolidation of loss-making Australia unit’s results, S$12.7m operating profit in 4QFY13 turned into S$24.2 loss in 4QFY14 as weakness emerges in its main Singapore operations. 4QFY14 PATMI loss increased by 5.2x from S$15.4m to S$95.5m due to: 1) S$25.0m provision for onerous aircraft leases (grounding of eight aircrafts), and 2) S$47.4m losses in associates. On a full year basis, Tigerair Singapore reported operating loss of S$58.6m in FY14, a 180-degree turn from its S$57.1m operating profit in FY13. This is due to the familiar story of weaker yield (-9.9% to 6.74S-cent/rpk) and lower load factor (-6.2ppt to 78.1%), in turn caused by overcapacity and insensible competition. Together with exceptional items (i.e. impairments and provisions) and losses from associates, TR’s net loss widened from S$45.4m in FY13 to S$223.0m in FY14.
Switching from growth-mode to profitability-mode
Management will be focusing on managing capacity and optimising yield ahead. First, eight aircrafts will be grounded in FY15 (five in Indonesia and three in Philippines). We welcome this move as it will help to reduce operating costs. However, if the grounded aircrafts are unable to be re-deployed or sub-leased to other airlines for a prolonged period, we think further provisions will have to be made. Second, TR has divested its stakes in loss-making Tigerair Australia and Tigerair Philipines in FY14, and is re-assessing its stake in Tigerair Mandala. Third, capacity expansion is checked as orders for nine A320s in 2014-2015 were cancelled, replaced by deliveries further away in 2018-2025.
No turnaround in sight
We like TR’s focus on managing over-capacity and asset-light strategy of network extension through alliances (vs. owning direct stakes previously). However, the still-intense competition in the LCC industry is likely to check TR’s performances ahead. As we incorporate the latest results, we maintain SELL and lower our FV estimate from S$0.38 to S$0.30.
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