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Tiger Airways Holdings Limited - MANAGEMENT REPLY: Can lower jet fuel costs really mitigate the overcapacity issues?

Fuel cost is much lower than a year before but Tiger Airways is still facing overcapacity issues in the industry.

5/8/2015 – Tiger Airways says that the July to September period is seasonally weak.

However, it will continue to explore all opportunities for synergies with Scoot and the rest of the SIA Group in commercial, operational and other areas.

OCBC Research has a SELL call with a target price of S$0.29 due to the uncertain outlook.

The company just announced earnings for Q1 FY16:

Revenue: -2% to S$168.3 mln
Profit (Loss): (S$1.7 mln) vs (S$65.2 mln)
Cash flow from operations: S$2.4 mln vs S$52.9 mln

Revenue was lower than the prior year due to a capacity decrease of 7.2%.

However, the consolidation of the fleet and network led to improvement in yields of 4.7%.

The load factor fell 1.2%-points to 83.5%.

The Group’s loss narrowed due to the absence of shutdown costs and losses related to Tigerair Mandala.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question
Question

1. Can lower jet fuel costs really mitigate the overcapacity issues?

According to OCBC Research, 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 Q1 FY16, its load factor saw a YoY decline of 1.2%-points for the period.

That said, it still thinks lower jet fuel costs will help mitigate impact from the competitive business environment ahead.

However, according to Centre for Aviation (CAPA), Thai Lion (an affiliate of Lion Group) is resuming international expansion with Singapore, on an extremely competitive Bangkok-Singapore route, which Tigerair currently is already serving.

Lion Group’s willingness to enter an already competitive route indicates that it is likely to continue to pursue expansion on competitive but strategic short-haul routes.

As a result, the LCCs industry is likely to remain competitive over the next few years.

Management Reply:No reply.

Question
Question

2. How is the slowing economy in China and Singapore expected to affect the Group?

With China’s GDP growth expected to slow and the Singapore’s GDP growth not expecting a large upswing, OCBC Research thinks air travel demand will likely be unable to keep pace with capacity expansion unless AirAsia and LionAir starts to rationalise capacity.

Management Reply: No reply.

(Read the full story to get all 5 questions - and the answers we received to two of them)

We thank management for their response.

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