Tiger Airways (Tigerair) 1QFY16 results saw its core net loss narrow by 88.8% YoY to S$1.7m as operating expenses dropped 10.8% to S$167.7m. Specifically, lower fuel, staff and airport and handling expenses were the main contributors to the drop in expenses. For Tigerair’s top line, 1QFY16 revenue declined 2.0% YoY to S$168.3m as Tigerair rationalized capacity with a 7.2% reduction but this was mitigated by a 4.7% improvement in yields driven by network rationalisation. Overcapacity is likely to persist and plague Southeast Asia’s airline industry as the two biggest Low Cost Carriers (LCCs), AirAsia and Lion Air, are expected to further expand their capacity over the next few years. Overcapacity translates to downward pressures on yields. That said, we still think lower lower jet fuel costs will help mitigate impact from the competitive business environment ahead. Incorporating 1QFY16 results and given the uncertain outlook, we cut our FY16F PATMI by 4.9%. Consequently, our FV drops from S$0.30 to S$0.29 (8.0x FY16F EV/EBITDA). Maintain SELL.
Lower fuel costs helped narrow 1QFY16 core net loss
Tiger Airways (Tigerair) 1QFY16 results saw its core net loss narrow by 88.8% YoY to S$1.7m as operating expenses dropped 10.8% to S$167.7m. Specifically, lower fuel, staff and airport and handling expenses were the main contributors to the drop in expenses. However, these declines were partially offset by a S$4.1m increase arising from changes in accounting estimates for maintenance provisions and aircraft depreciation policy. For Tigerair’s top line, 1QFY16 revenue declined 2.0% YoY to S$168.3m as Tigerair rationalized capacity with a 7.2% reduction, but this was mitigated by a 4.7% improvement in yields driven by network rationalisation, as well as higher lease income from sublease of aircraft to Tigerair Australia and Taiwan. This set of results did not come as a surprise to us, since lower fuel costs and absence of one-off restructuring costs were within our expectations.
Overcapacity to persist but declining jet fuel cost helps
Overcapacity is likely to persist and plague Southeast Asia’s airline industry as the two biggest Low Cost Carriers (LCCs), AirAsia and Lion Air, are expected to further expand their capacity over the next few years. Overcapacity translates to downward pressures on yields. While Tigerair saw recovery in its yields for 1QFY16, its load factor saw YoY decline of 1.2ppt for the period. That said, we still think lower jet fuel costs will help mitigate impact from the competitive business environment ahead. With an average hedging exposure of 40%, we forecast Tigerair to be 65%, 55%, 40%, 25% and 15% hedged for each quarter from 2QFY16 to 2QFY17, at the disclosed average hedged price of US$87/barrel.
Progress made but turnaround still far; maintain SELL
Tigerair’s stated collaboration with Scoot saw good progress over the period but management reiterated that much more can be done. Incorporating 1QFY16 results and given the uncertain outlook, we cut our FY16F PATMI by 4.9%. Consequently, our FV drops from S$0.30 to S$0.29 (8.0x FY16F EV/EBITDA). Maintain SELL rating on Tigerair.
Tiger Airways (Tigerair) 1QFY16 results saw its core net loss narrow by 88.8% YoY to S$1.7m as operating expenses dropped 10.8% to S$167.7m. Specifically, lower fuel, staff and airport and handling expenses were the main contributors to the drop in expenses. However, these declines were partially offset by a S$4.1m increase arising from changes in accounting estimates for maintenance provisions and aircraft depreciation policy. For Tigerair’s top line, 1QFY16 revenue declined 2.0% YoY to S$168.3m as Tigerair rationalized capacity with a 7.2% reduction, but this was mitigated by a 4.7% improvement in yields driven by network rationalisation, as well as higher lease income from sublease of aircraft to Tigerair Australia and Taiwan. This set of results did not come as a surprise to us, since lower fuel costs and absence of one-off restructuring costs were within our expectations.
Overcapacity to persist but declining jet fuel cost helps
Overcapacity is likely to persist and plague Southeast Asia’s airline industry as the two biggest Low Cost Carriers (LCCs), AirAsia and Lion Air, are expected to further expand their capacity over the next few years. Overcapacity translates to downward pressures on yields. While Tigerair saw recovery in its yields for 1QFY16, its load factor saw YoY decline of 1.2ppt for the period. That said, we still think lower jet fuel costs will help mitigate impact from the competitive business environment ahead. With an average hedging exposure of 40%, we forecast Tigerair to be 65%, 55%, 40%, 25% and 15% hedged for each quarter from 2QFY16 to 2QFY17, at the disclosed average hedged price of US$87/barrel.
Progress made but turnaround still far; maintain SELL
Tigerair’s stated collaboration with Scoot saw good progress over the period but management reiterated that much more can be done. Incorporating 1QFY16 results and given the uncertain outlook, we cut our FY16F PATMI by 4.9%. Consequently, our FV drops from S$0.30 to S$0.29 (8.0x FY16F EV/EBITDA). Maintain SELL rating on Tigerair.
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