The widely speculated couple has turned official. Last night both Tiger and SIA's Scoot announced they are in partnership to offer single-ticket itineraries out of Australia and subsequently for inbound to Australia. The partnership will be carried out in two phases. Initially, passengers from Scoot Australia would be able to book flights to routes operated by Tiger Singapore and later on Tiger Singapore's passengers would be able to purchase flights to various Australian destinations operated by Scoot. At present, Tiger just operates the Singapore-Perth route and flights domestically within Australia. We view the news positively as this will increase traffic flow to Tiger Airways.  However we believe that any earnings impact will be minimal at this point in time as the slight boost to load factor is offset by our lower yield assumptions in light of the highly competitive landscape Down Under. Our earnings remain largely intact with our TP raised marginally from S$0.75 to S$0.76, still pegged to 2.5x FY13F P/B. Given that our TP has been hit, we are downgrading the stock to a Neutral.

Details of the partnership. From 2Oct2012, Scoot passengers will be able to book flights from Sydney and Gold Coast to fly to Tiger's destinations in Phuket, Ho Chi Minh and Kuala Lumpur via Singapore. Then from 2Nov2012, Tiger passengers will be able to book flights to various destinations in Australia. Initially, passengers will be faced with the hassle of having to pass through immigration and re-checking in their baggage for the next leg of their journey but this hassle will be eliminated later on.

Minimal impact to earnings. While the partnership will bring traffic to Tiger boosting load factors, we see minimal earnings impact at this point in time. We have also assumed lower yield assumptions going forward, given the highly competitive landscape down in Australia. As such our earnings forecast remains largely unchanged.

TP reached, downgrade to Neutral. Our TP has been marginally raised from S$0.75 to S$0.76 and given our TP has been hit, we are downgrading the stock to a Neutral.

  

   

Source: OSK