Tiger Airways Holdings lifting off to profitability?

Turnaround seen as early as 3QFY13 if overseas plans pull through and local demand recovers, says DBS.

Indonesia and Australia hold promising opportunities for the flailing airlines, with the former finally reactivating the operations of PT Mandala Airlines and the latter offering expanded market share after competitor Air Australia went bankrupt.

Here's more from DBS:

Fleet deployment now less of a concern. Tiger Airways announced that the Indonesian regulator has reactivated PT Mandala Airlines' Air Operator's Certificate (AOC). This removes much of the uncertainty regarding deployment of its current and incoming fleet. With the resumption of Mandala flights by April 2012, Tiger will lease three aircraft to Mandala initially, and rising to ten by the end of FY13 (March YE). Given that Indonesian regulations require new airlines to have a fleet of 10 aircraft within its first year of operations, this fits in nicely with Tiger's plans.

Look forward to second base in Australia. Air Australia’s bankruptcy also comes at a good time for Tiger. While Air Australia was a small player operating seven aircraft mainly out of Brisbane, its exit could lead to higher loads and yields on the lucrative Melbourne-Brisbane sector. There is now a chance for Tiger to base its aircraft in Brisbane, with the additional catchment area of Gold Coast as well. Tiger is currently operating 7 aircraft out of Melbourne and is actively looking for a second base in Australia to expand routes.

Improving visibility, upgrade to BUY. If all the above falls into place and Tiger Singapore does not add any new capacity in FY13, we reckon demand should catch up in Singapore. This should lead to better profitability and allow Tiger Airways to narrow losses over the next few quarters and potentially turn around by 3Q-FY13, which is the seasonal high for loads and yields. We now expect Tiger to be near breakeven for FY13 – compared to S$16m net loss expected earlier – and to register S$67m net profit in FY14. Given the improving execution and better visibility, we upgrade the stock to BUY, with a higher TP of S$1.01 (pegged to 6x FY14 EV/EBITDAR).

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Tags: Tiger Airways Holdings, PT Mandala Airlines, Air Australia bankruptcy