Tiger Airways (TGR) last night reported that its number of passengers flown in Dec 2011 fell 13% YoY to 481k while seat capacity was only 5% lower YoY at 580k. On a positive note, TGR's passenger load factor (PLF) recovered to 83%. TGR still has to prove the early sign of recovery in Dec 2011 was not entirely due to seasonal effect and it is truly on a recovery path. 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. Thus, we maintain our HOLD rating on TGR, with a fair value estimate of S$0.65/share.

But is the recovery real or skewed by seasonality?
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.

Persistently high jet fuel prices mean more losses expected
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.

Maintain HOLD and fair value of S$0.65
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. We maintain our HOLD rating on TGR, with a fair value estimate of S$0.65/share, which represents a near all-time low P/B multiple of 1.9x. (Read full report)