• Improved PLF in 1QFY15
• PLF steadied by capacity management
• Regional LCC growth pressures yield

Better capacity-demand match in 1QFY15

Tiger Airways Holdings’ (TR) Singapore operations improved QoQ in 1QFY15 on the back of peak travel period and active capacity management – passenger load factor (PLF) edged up gradually by 7.1ppt from 79.2% in Mar-14 to 86.3% in Jun-14. Capacity management was most evident in Apr-14, when capacity (in average seat km, ASK) was lowered by 9.6% MoM, which more than made up for the 5.5% MoM fall in carriage (in revenue passenger km, RPK). Thereafter, capacity was kept relatively steady at ~1.0b ASK while carriage crept up from 860m RPK in Apr-14 to 898m RPK in Jun-14, resulting in better PLF. On a YoY basis, there are signs of bottoming out as PLF increased for the first time in nine months by 1.8 ppt in Apr-14. It subsequently tapered to a 0.9ppt increase in May-14 before falling slightly by 0.2ppt in Jun-14.

Fleet expansion halt to aid FY15 PLF

We believe improved PLF YoY can be sustained for Tigerair Singapore in FY15. First, TR will not be taking on new plane deliveries in 2014-2015 after cancelling its nine A320 orders in Mar-14, thus providing room to absorb previous capacity growth. Second, we think the four planes returning from now-defunct Tigerair Mandala will be grounded. Previous grounding announced in May-14 suggests TR was already unable to re-deploy the returned aircraft back then. Third, fleet expansion is also scaled back by rivals Jetstar Asia, the Singapore-based subsidiary of Jetstar Group (fleet to stay flat at 19 aircraft for 2014), and AirAsia Group (12 aircraft sales and seven deferrals for 2014; expected 19 aircraft deferrals for 2015).

But turnaround still unlikely

We think the improving PLF will only help TR’s performance to bottom out in FY15 but still insufficient for a turnaround. Though fleet expansion is moderated, SE Asia’s LCC fleet is still projected to grow by a high 17% in 2014 according to CAPA. Hence, downward pressure on yield and thus margins is likely to stay. Maintain SELL with S$0.30 fair value estimate.

Source: OCBC Research - 18 Jul 2014