Tigerair licks its wounds after suffering $32.8m losses

Operating expenses slowed down.

According to OCBC Investment Research, Tigerair (TR) reported weaker-than-expected 1Q14 results following continued losses from its associate airlines, which masked an improvement in performance from Tigerair SG (TRS) and Tigerair AU (TRA).

Overall revenues grew 30.3% YoY to S$236.2m while a slower pace of operating expense increases saw the group’s operating loss narrow to S$6.2m from S$11.8m over the same period a year ago. As a result of associate losses (-S$26.6m), 1Q14 net loss came in at S$32.8m versus –S$13.7m for 1Q13.

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But there are some positives from associate figures. The bulk of losses from associates was due to the recognition of prior losses for Tigerair Mandala (TRM: -S$20.6m) following a reclassification of S$26m of shareholder loans as a capital investment, with Tigerair Philippines (TRP) contributing the remaining $6.0m loss.

While the losses seem daunting, we derive some positives from the figures: TRM had no further unrecognised loss in 1Q14 while TRP’s losses declined for the second straight quarter (-S$8.3m in 3Q13; -S$7.m in 4Q13).

Turnaround ongoing despite seasonally weaker 2Q14. Entering the seasonally weaker 2Q14, we expect passenger traffic to taper off. However, coupled with the deconsolidation of TRA 2Q14 and managed capacity for TRS, we are optimistic for a return to operating profitability for the period.

While losses from associates will extend for the coming quarters due to their start-up nature, our forecasts call for QoQ improvements with losses narrowing.

Forecasts adjusted; BUY maintained. We adjust our forecasts to account for TRA’s deconsolidation and aircraft deliveries for TRS.

Industry dynamics continue to favour budget over premium carriers and TR’s network expansion should pay-off in the long-run. In the interim, TRS will continue to drive growth and provide a stable base for the group.

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