The Tiger continues to bleed

Courtesy Bloomberg

Courtesy Bloomberg

IF you get the impression that Tigerair is finally turning around because it reported a net profit in Q2, you have missed the trees for the woods.

In the quarter ended September, Tigerair posted a net profit of S$23.8 million (US$19.2 million). This was attributed largely to its sale of 60-per-cent ownership to Virgin Australia. Tigerair actually suffered an operating loss of S$12.8 million, which was higher compared to last year’s loss of S$11.5 for the same quarter. The Virgin trade-off was a one-off gain as Tiger Australia continues to underperform.

While traffic volume for Tigerair’s Singapore operations increased by 22 per cent, resulting in an increase in revenue of 14 per cent to $151.3 million, net yield deteriorated. Tigerair Group CEO Koay Peng Yen attributed this to “higher airport and handling charges following our relocation from Changi Airport’s Budget Terminal to Terminal 2.” The poorer yield was also the result of Tigerair’s inability to fill up the increase in capacity by 27.5 per cent.

Overall, while the partial stake sale to Virgin Australia raked in some money, Tigerair suffered from poor investments in Indonesia (Mandala Airlines) and the Philippines (SEAir) which added losses to its bottom-line and look likely to continue to bleed red. Clearly Tigerair is not making much headway in competition outside its Singapore base. Yet it is in an untenable position caught between the a rock and a hard place that without a foothold in the region pending the full implementation of Asean Open Skies in 2015 and as the region beyond becomes more liberal may be more detrimental to its future than sticking it out with present pain – perhaps with a little help from parent Singapore Airlines.

Even in Singapore, Tigerair is facing tough competition from rivals such as Jetstar Asia and AirAsia. The airline is now looking to tapping the corporate market. Mr Koay said: “We are introducing ourselves to the corporate customer segment because we offer good value to companies; not just the small and medium enterprises, but companies of any size, because with Tigerair, you can halve your costs of flying to your destinations.”

That sentiment smacks of a presumptuous attitude. For an airline that complained about the higher costs of operating out of a main terminal at Changi Airport which had since demolished the erstwhile Budget Terminal to make way for a fourth terminal, that comes across as an unlikely ambition. We recall the days when Tradewinds (and later as the rebranded SilkAir) decided to shed its leisure image and entice the business market, but not all too successfully even as the Singapore-Jakarta that it eyed was one of the most popular and lucrative business routes in the region. The business class market is quite a different kettle of fish. No doubt Tigerair may be able to offer much lower fares – halved as it said, and very attractive on that count – but is that enough to entice business travellers who may not only have the propensity but also the willingness to spend more on the short sectors?

Tigerair may do better sticking to the budget model and focusing on improving its low-cost product to offer the best value for the fares it charges vis-à-vis the competition. That should not change even as it flashed a new logo recently, apparently to project a friendlier and less aggressive animal, and tweaked its name to be trendier and hip. But it has to do more than just that to prove to its customers that the new Tiger can actually change its stripes. The test of the pudding is in the eating.

The low-cost business in the early days was largely propelled by emerging markets – new destinations in the outback and new travellers yet to acquire the habit of flying. While Southeast Asia and beyond in the wider Asia-Pacific environment may still offer a lot of opportunities for airlines such as Tigerair to reach into the outback and create niche demand, the gestation period for growth and development has been shortened markedly. As the market matures, with more airlines entering the arena and the more established legacy airlines suddenly become threatened by cheaper alternatives, the game is all about competition. In that environment, Tigerair has to adopt a less self-deserving and blinkered strategy that entails a greater awareness of what its rivals are capable of.

Today’s market is extremely volatile, fickle and constantly shifting. Maybe a tamer tiger is not such a good idea after all.


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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