Taming of the Tiger

BUDGET carrier Tiger Airways chief executive Tony Davis could not have picked a more unpropitious time to download one million shares or 24.3 per cent of his holdings, and at the price of S$1.42 per share which is below Tiger’s IPO price of S$1.50. In August last year, Mr Davis and two of Tiger’s largest shareholders – Ryanasia and Indigo Partners – already relinquished 12 per cent of the issued capital.

Earlier, Tiger acknowledged the tough operating conditions it faces in Australia – reporting yet another year of loss, this time amounting to S$9 million compared to S$600,000 the previous year – and indicated the group would be shifting its focus to the more lucrative Asian market.

But all is not that rosy nearer home either, even as Tiger reported healthy financial results for the group – an operating profit of S$47.2 million, up 82 per cent.

There are lingering uncertainties about the planned joint-venture with Thai Airways, which seems inclined to go it alone to set up its own low-cost subsidiary instead. Thai Airways chairman Ampon Kittiampon said: “Whether or not Thai Tiger could be established, we are going ahead with this new airline anyway.” Thai government approval, which is pending for the proposed joint-venture with Tiger, is not required in this case. For Tiger, it will mean yet another competitor in the low-cost business.

This seems to be a replay of an earlier ambition to start a Korean-based budget airline – Incheon Tiger Airways – in a joint venture with Incheon Metropolitan City. The initiative was announced in 2007 with plans to commence operations in 2009, but was abandoned in 2008. Interestingly, Singapore Airlines (SIA) which has said it would be setting up a wholly-owned long-haul budget subsidiary is apparently keenly eyeing the South Korean market.

In the Philippines, Tiger’s partnership with SeAir has run foul of the authorities, which have ordered Tiger to cease selling seats on its platform for SeAir’s domestic routes between Manila and two other cities. It is alleged that the carriers were circumventing air traffic rights restrictions through an aircraft lease and marketing agreement.

The once ferocious Tiger seems to have been tamed somewhat in an otherwise much-touted growing budget market that even SIA, an airline reputed for its world-class premium product, is gearing up to enter, albeit expressly for the long-haul instead of the conventional five-hour maximum flight radius. The question is whether it is Tiger alone that is losing steam while other carriers such as Air Asia, Jetstar and Cebu Pacific are still feeling gungho about the business, or whether Tiger’s misfortunes are an early sign of a maturing market in which only the fittest few will survive.

Boasting a lineal descent from Ryanair and SIA, Tiger was a promising start-up that quickly demonstrates it is as ambitious as its parents. Its astute strategy of setting up bases outside Singapore to overcome the four-to-five-hour flight limitation of the conventional budget model helps Tiger to tap into other markets that are beyond the reach of operating out of its Singapore base. Considering that much of budget travel is end-to-end traffic, it is imperative to be where the business begins and ends.

But, perhaps unaware, Tiger may have underestimated the concerns, apprehension and disquiet that such an aggressive thrust into foreign space could generate, something not unknown to parent SIA. Friendly rivalry is a misnomer in the real world of competitive business. As SIA encountered hurdles as it expanded, observers generally agreed that if it failed, it had unwittingly become a victim of its success.

However, Tiger is not SIA. It cannot claim to be the doyen of budget travel in the same way that the SIA brand name is synonymous with premium travel. In recent times, Tiger has been plagued by complaints of poor service (and it has been taken to task for alleged arrogance in its response to complaints), frequent flight cancellations, a dearth of pilots and safety investigations.

The Sydney Morning Herald reported that Australia’s Civil Aviation Safety Authority (CASA) has warned Tiger to show “why it should not have its licence to fly revoked”. The airline’s crew had complained that their scheduled hours were causing fatigue. According to its director of operations Captain Tim Berry, Tiger has since adjusted its pilots’ rosters.

While it is true the early bird catches the worm, Tiger may have roamed too far and wide too soon, willy-nilly ahead of the propensity of the market to grow. Reigning back to reassess its strategy may be that timely stitch that saves nine and positions the carrier to better tap the potential of the massive Asian budget market where it is heading, one that is forecast to surpass that of Europe and America.

Hence, recognizing the challenging operating conditions in Australia, Tiger has decided to maintain seat capacity at last year’s level, review its network that may result in route suspensions, and focus on profitable flying rather than growth.

There is a nagging, perhaps mischievous, question yet. Does SIA’s decision to start a long-haul budget subsidiary – which may in time also embrace the short-haul – portend freeing Tiger from its stable? (Note that SIA has reduced its stake from 49 per cent originally to 32.9 per cent.) Now, that would present yet another challenge for Tiger.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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