More losses expected for Tiger Airways: OCBC

The airline is said to be not showing a sustained recovery amidst persistently high jet fuel prices.

OCBC Investment Research said:

Tiger Airways (TGR) last night reported its latest operating statistics. Clearly still recovering from the previous grounding of its Australian flight services, TGR’s number of passengers flown fell 13% YoY to 481k while seat capacity was only 5% lower YoY at 580k in Dec 2011.

On a positive note, TGR’s passenger load factor (PLF) recovered to 83%, breaking the 80%-mark for the first time since its Australian operations were grounded for six weeks starting in Jul 2011.

TGR’s Dec 2011 PLF of 83% is impressive, especially when compared to the high 70s it has recorded in recent months. But in 2009 and 2010, TGR recorded 90% or higher PLFs in the usually busier month of Dec.

TGR still has to prove Dec 2011 was not a flash in the pan and it is truly on a recovery path. As reference, TGR’s CEO last month told The Straits Times that Tiger Airways Australia is expected to, by the middle of this year, recover back to its pre-suspension activity level of operating 10 aircraft.

In 3QFY12, jet fuel prices (JETKSIFC Index) adjusted to SGD averaged 4% higher than in 2QFY12, when TGR recorded a net loss of S$50m. With fuel costs contributing to 40-45% of total expenses, persistently high jet fuel prices are likely to continue depressing TGR’s profit margin. Coupled with its less than optimal PLFs, TGR will most probably remain loss-making in 3QFY12.

It is encouraging to see TGR showing an early sign of recovering from the grounding of its Australian operations. However, it is probably too early to buy into TGR, with jet fuel prices stubbornly refusing to return to a more manageable level and without TGR showing a sustained recovery.