Tiger Airways Australia

Tiger faces challenging year as it looks to recover following losses in Australia and Singapore

Tiger Airways has reported a loss of SGD104 million (USD82 million) for its fiscal year ending 31-Mar-2012, a rare negative result for a leading Asian LCC, which generally continues to profit from the huge growth opportunities in the budget end of Asia’s dynamic market. But Tiger is confident the launch of new joint ventures in Indonesia and the Philippines will allow the group to absorb the excess capacity which plagued Tiger in FY2011/12, significantly increasing its ex-fuel unit costs as its fleet became underutilised.

With the return of higher aircraft utilisation and lower unit costs, coupled with more rationale capacity, Tiger’s typically profitable Singapore operation could return to the black later this year. But turning around the Australia operation, which was already unprofitable prior to the six-week grounding by Australian regulators last July and August, could be more challenging. Equally daunting is the task of turning its newly launched joint venture in Indonesia and its planned joint venture in the Philippines, which is now expected to launch in the quarter ending 30-Sep-2012 (2QFY2012/13), into profitable investments.

Australian aviation market shows signs of slowdown just as airlines were enjoying yield premiums

There are now clear signs the Australian aviation market is entering a light slowdown, with carriers adding capacity ahead of demand while airfares decline marginally. This will affect the region's carriers differently and they should all fare better than counterparts elsewhere in the world; notably, the market in Australia is still growing, but not as fast. Most exposed are Qantas mainline and Tiger Airways Australia. The former has been slowly losing some corporate business to Virgin Australia and competes with a higher cost base.

Tiger is suffering from group-wide over-capacity and would not be able to redeploy capacity as readily. Unlike Tiger, Jetstar has a healthy and rapidly growing pan-Asian network that can absorb any surplus capacity and at a higher margin even than in Australia. Virgin Australia is seeing yield growth from its transition to a business carrier, growth that should overcome any weakness in the more leisure-exposed areas of its business.

Tiger Airways’ pan-Asian ambitions floundering with dire need for growth

With progress still to emerge on a series of pan-Asian joint-ventures, Tiger Airways is nearing a tipping point where it must decide if it can be a baby pan-Asian carrier to the more successful AirAsia and Jetstar, or if reality will constrain it to a limited and disconnected franchise network. The implications may make or break the airline group: stalled progress on joint ventures (JV) and a reduced network in Australia saw Tiger instead deploy capacity on its Singapore network. That proved too much, blowing out costs and causing the usually healthy operation to post a SGD12 million (USD9.3 million) loss for the quarter to 30-Sep-2011.

Expected poor performance in Australia as the carrier was impacted from a six-week imposed grounding saw the subsidiary post a SGD27.2 million (USD21 million) loss.

Qantas yields soar on Tiger's grounding

Domestic yields at the Qantas Group have soared in the first part of the financial year with the company recording a 9.4% yield increase year-on-year in Jul-2011, its second highest monthly growth in a decade. The period corresponds with the grounding of Tiger Airways Australia, which removed approximately 12,400 seats from the market daily and saw airfares significantly increase.

Yields – calculated across all of the Group's domestic operations – continued to show strong growth even after Tiger resumed services in Aug-2011, albeit with only 10% of its pre-grounding seats. Qantas domestic yields grew 5.8% year-on-year in Aug-2011, the 15th highest monthly growth in the 117 months Qantas has reported figures.

Bruce Buchanan, CEO of Qantas' Jetstar unit, has acknowledged the upward pressure. Domestic yields across all Australian mainline carriers can be expected to grow highly over the next few months as Qantas removes capacity due to union strikes, but will come at the expense of decreased revenue at Qantas. For Virgin Australia, yields will grow with revenue.

Australian air fares continue to climb post-Tiger grounding

The upward pressure on domestic Australian air fares, which started after low-cost operator Tiger Airways was grounded in Jul-2011, is showing no signs of relenting. Fare decreases are expected from the peak September period to the comparatively slower October, but the drop this year is lower than the corresponding drop in 2010, suggesting fares - which soared after Tiger's grounding - are not plateauing.

Fares in Oct-2011 dropped 11.3% from Sep-2011, a lower decrease than the previous year's drop of 15.6% from Sep-2010 to Oct-2010.

Although jet fuel has surged in the past year, and could explain an increase in ticket prices, Australian air fares were relatively flat until Tiger's grounding saw fares increase.

Tiger Australia settles in for medium-term with new director but growth restrictions and lower fares

Tiger Airways Australia is settling in for the medium-term with a re-launched network it has built up, which is now approximately one-third of its Jun-2011 pre-grounding size. The immediate future will see former Virgin Blue executive Andrew David take the reigns from Tony Davis, who is leaving the company.

Tiger is also lowering its lead-in fares to pre-grounding levels, but no headline fares of AUD15 inclusive or zero (plus taxes) have been offered yet, and may not be as long as Tiger faces no price undercutting and seeks to build network volume with requisite approval from the Civil Aviation Safety Authority (CASA). Its growth outlook is focused on Melbourne Tullamarine, with service resumption from Melbourne Avalon unlikely in the next year.