• Capacity management still a concern
• Priority on Tigerair-Scoot alliance for growth
• Change in FV estimate; maintain SELL

Improvements to PLF but much more needed to be done

Tiger Airways Holdings (Tigerair) reported passenger load factor (PLF) improvements in the first two months of its 2QFY15 operating statistics. Tigerair’s PLF for Jul-14 and Aug-14 increased 3.1ppt YoY to 82.6% and 4.6ppt to 83.1%, respectively. We think PLF is likely to stay above 80% for the rest of 2H14 as Tigerair focuses on capacity management to increase aircraft utilisation. However, we remain concerned about its 12 grounded aircrafts as they continue to incur lease expenses. We believe these aircrafts will continue to be a drag on Tigerair’s earnings until they are able to either sublease or novate leases of these grounded aircrafts to other parties. We also do not expect any fleet expansion until 2018, when Tigerair takes delivery for its order for A320neo aircrafts.

Tigerair-Scoot alliance to provide longer-term boost

The anti-trust immunity (ATI) granted to the Tigerair-Scoot alliance (TS) by the Competition Commission of Singapore last month provides both airlines with greater flexibility to coordinate schedules, routes, pricing as well as certain aspects of joint operations. Tigerair will be able to capture growth in interlining passengers flying from Scoot’s medium to long-haul destination, through Singapore, to other parts of Southeast Asia (SEA) served by Tigerair. Specifically, we believe more focus will be placed on coordination of routes between China and SEA. However, in order to capture this market, timing of connecting flights must be coordinated and changes to flight timings require approval from the relevant Singapore authority. Hence, we expect the alliance to have meaningful contribution to Tigerair’s results only from 1HFY16 onwards.

Raised FV estimate on TS boost; maintain SELL

Although the overcapacity issue in SEA is likely to continue to supress yields, we believe Tigerair’s focus on capacity management will alleviate the impact on its earnings. We have made conservative growth assumptions for TS’ FY16 contribution and this will remain so until further details are announced on the coordination of routes and schedules. Hence, we decrease FY15F and FY16F estimated net loss by 4.8% and 69.1% to S$103.7m and S$16.1m, respectively. Consequently, we raise our FV estimate to S$0.35 (prev: S$0.30) while maintaining a SELL rating.

Source: OCBC Research - 18 Sep 2014