Tiger Airways (Tigerair) showed strong discipline in capacity management as it reported a 4.3 ppt YoY increase in its Feb-15 passenger load factor (PLF) to 78.9%. Feb-15 was the eighth consecutive month that Tigerair showed YoY improvement in its PLF, indicating consistent efforts put in to manage capacity. . However, we still think there are much more to be done for Tigerair’s turnaround through the alliance with Scoot. The uncertainty over air travel demand from the expected slowdown in global economy also gives us a good reason to remain cautious on near-term outlook. Looking ahead, at least until end-FY16, we think Tigerair will benefit from the lower jet fuel costs given its hedging exposure. We updated our model and as a result, our projection for FY16 forecast improves from net loss of S$0.7m to net profit of S$50.6m. While the Scoot-Tigerair alliance is making good progress, we think Tigerair’s turnaround still has some way to go. With uncertain near-term outlook, and the recent run-up in share price likely overdone, we reiterate SELL, even as our FV increases from S$0.23 to S$0.29 (8.0x FY16F EV/EBITDA).
Outlook remains uncertain
Tiger Airways (Tigerair) showed strong discipline in capacity management as it reported a 4.3 ppt YoY increase in its Feb-15 passenger load factor (PLF) to 78.9%. Feb-15 was the eighth consecutive month that Tigerair showed YoY improvement in its PLF, indicating consistent efforts put in to manage capacity. We believe the encouraging operating statistics shown over the past few months are sustainable with management likely to continue to focus on capacity management as part of its turnaround strategy. However, we still think there are much more to be done for Tigerair’s turnaround through the alliance with Scoot to capture interlining traffic growth. The uncertainty of air travel demand from the expected slowdown in global economy also gives us a good reason to remain cautious over Tigerair’s near-term outlook. Note that Tigerair saw four consecutive quarters of YoY decline in its passenger volume.
Cheaper fuel lifts FY16 PATMI forecast
Looking ahead, at least until end-FY16, we think Tigerair will benefit from the lower jet fuel costs given its hedging exposure. With Brent crude price fluctuating around the US$60/barrel range for the past one month, we updated our model with the assumption that jet fuel price for FY16 to be US$75/barrel, implying a crack spread of US$15/barrel. Similar to Singapore Airlines hedging policy, we think Tigerair also hedged on a declining wedge basis. On this rationale, with an average hedging exposure of 35%, we forecast Tigerair to be 55%, 50%, 40%, 20% and 10% hedged on jet fuel for each quarter from 4QFY15 to 4QFY16, respectively, at an average price of US$111.68/barrel. As a result, our projection for FY16 forecast improves from net loss of S$0.7m to net profit of S$50.6m.
Raise FV; maintain SELL
While the Scoot-Tigerair alliance is making good progress, we think Tigerair’s turnaround still has some way to go. With the uncertain near-term outlook, and the recent run-up in share price likely overdone, we reiterate SELL, even as our FV increases from S$0.23 to S$0.29 (8.0x FY16F EV/EBITDA) on cheaper jet fuel.
Tiger Airways (Tigerair) showed strong discipline in capacity management as it reported a 4.3 ppt YoY increase in its Feb-15 passenger load factor (PLF) to 78.9%. Feb-15 was the eighth consecutive month that Tigerair showed YoY improvement in its PLF, indicating consistent efforts put in to manage capacity. We believe the encouraging operating statistics shown over the past few months are sustainable with management likely to continue to focus on capacity management as part of its turnaround strategy. However, we still think there are much more to be done for Tigerair’s turnaround through the alliance with Scoot to capture interlining traffic growth. The uncertainty of air travel demand from the expected slowdown in global economy also gives us a good reason to remain cautious over Tigerair’s near-term outlook. Note that Tigerair saw four consecutive quarters of YoY decline in its passenger volume.
Cheaper fuel lifts FY16 PATMI forecast
Looking ahead, at least until end-FY16, we think Tigerair will benefit from the lower jet fuel costs given its hedging exposure. With Brent crude price fluctuating around the US$60/barrel range for the past one month, we updated our model with the assumption that jet fuel price for FY16 to be US$75/barrel, implying a crack spread of US$15/barrel. Similar to Singapore Airlines hedging policy, we think Tigerair also hedged on a declining wedge basis. On this rationale, with an average hedging exposure of 35%, we forecast Tigerair to be 55%, 50%, 40%, 20% and 10% hedged on jet fuel for each quarter from 4QFY15 to 4QFY16, respectively, at an average price of US$111.68/barrel. As a result, our projection for FY16 forecast improves from net loss of S$0.7m to net profit of S$50.6m.
Raise FV; maintain SELL
While the Scoot-Tigerair alliance is making good progress, we think Tigerair’s turnaround still has some way to go. With the uncertain near-term outlook, and the recent run-up in share price likely overdone, we reiterate SELL, even as our FV increases from S$0.23 to S$0.29 (8.0x FY16F EV/EBITDA) on cheaper jet fuel.
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