Wednesday, July 18, 2012

Tiger Airways and SEAIR

Tiger Airways is one of the low cost carriers that has a strong  presence in Singapore and Australia. It plans to increase its presence across various countries in Asia Pacific region through joint ventures. It intends to increase its fleet size from 33 to 68 by financial year 2015. But for Tiger Airways to execute its plans of expansion it would really need to pull up its socks as its financial position has deteriorated over the years like all the other airlines in the industry. Over the past few years the company has gone from profit of $39.9M to a loss of $104.3M.

One positive for it was increase of sales from 107.22% to 124.96%. Company is also earning negative returns on its assets which is a big disappointment, However Company has taken some positive steps in order to revive its position in market and capture the market share which it has lost to its competitors. Tiger Airways has decided that it would buy 40% stake in SEAIR valued at US$7mn along with liabilities which would be determined through due diligent process. Company also intends to buy 3 new A320 by joining hands with another airline through joint venture route by FY13E.

This is a positive development for Tiger Airways considering that there was a demand supply mismatch in Australia & Singapore which would be reduced after its flights would be deployed in other joint ventures which would mean that Tiger Airways would have its presence in countries like Philippines and Indonesia. Lot of governments is not open to allow foreign airlines to operate in their countries independently instead they encourage companies for joint ventures. Hence, it would be important for Tiger Airways to join hands with local companies of other countries to increase its presence and provide high quality service.

Stock of Tiger Airways didn’t react to the news of purchase of stake in SEAIR as company had announced the same earlier but was not able to deliver to its promise. There is lot of rage among customers with regard to the quality of the service which is provided by Tiger Airways. Hence, that would be something which it would need to improve in coming days in order to be a leading player in this segment. Aviation is a sector which is always consumer driven and it would be important for Tiger Airways to take the feedback from customers in positive way and work towards improving its standards.

Overall the developments are positive for the company but lot depends on its ability to execute its plans, Australia is one of the countries where in skeptics had written off the airline but Tiger Airways with its grit and determination has turned out by improving its service and looking forward to expand its horizon beyond Australia and Singapore. Its CEO Davis interview had said that they are looking for profitable business models and they aren’t in hurry to expand their presence in every part of the world. Hence, analyst's view on the stock is neutral with a target price of S$0.52

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