• Core profit finally back to black
• Good progress on turnaround plan
• Remain cautious; maintain SELL

Finally profitable after consecutive quarters of losses

Tiger Airways (Tigerair) finally turned profitable after several consecutive quarters of losses. Its 3QFY15 revenue increased 5.9% YoY to S$182.3m while expenses saw 1.5% decline to S$178.2m, largely due to improvement in yield, capacity rationalization as well as lower fuel and staff costs. This led to a positive PATMI of S$2.2m for 3QFY15 compared to net loss of S$118.5m in 3QFY14. For 9MFY15 results, its revenue dropped 13.0% to S$498.0m while expenses declined 10.7% to S$535.6m mainly due to exclusion of Tigerair Australia as a subsidiary since 2QFY14. Excluding one-off items, its 9MFY15 recorded S$71.1m loss, which is a 27.9% improvement from S$98.6m core net loss in 3QFY14.

Alliance with Scoot and SIA key for turnaround success

The restructuring efforts by Tigerair’s management seem to be taking off as consolidation of its business to focus on Singapore operations saw its 3QFY15 passenger yield improved 4.9% YoY while load factor recorded 6.2ppt growth. Management stated they will focus on capacity rationalization to sustain the YoY improvements in yields but cautioned against uncertainties in the macro environment where competition in the region remains intense. We believe the longer-term success of Tigerair hinges on driving growth and managing costs through the alliance with Scoot as well as with its parent, Singapore Airlines Limited (SIA). While the key idea to capture interlining passenger traffic between Tigerair and Scoot through coordination of connecting flights, slot timings at Changi Airport are generally granted semi-annually for each route. As such, we expect impact on passenger traffic growth to materialize gradually only from 2HFY16 onwards.

Remain cautious; maintain SELL

We remain cautious on the outlook of Tigerair as one profitable quarter does not guarantee the success of its turnaround strategy. We prefer to wait and see if these improvements can be sustained. Factoring in the results and updated outlook, our FY15F/16F net losses narrow from S$255.3m/S$1.4m to S$246.6m/S$0.7m. Our fair value consequently increases from S$0.18 to S$0.23. We think the 23% share price spike yesterday was overdone, maintain SELL.

Source: OCBC Research - 27 Jan 2015