Tigerair keeps sinking

Courtesy Tigerair

Courtesy Tigerair


THE tide has not changed for Tigerair as the budget carrier which is 40% owned by Singapore Airlines continues to be plagued by poor performance.

Tigerair posted an operating loss of S$16.4 million (US$13.1 million) for the quarter ended June 30, 2014, which is the first quarter of its new financial year. This was more than twice the loss of S$6.2 million for the same quarter last year.

The company cited two primary reasons for the contraction. First, the exclusion of Tigerair Australia from the results after it was acquired 60% by Virgin Australia in July last year. This raised the question as to whether Tigerair had made a bad investment decision at a time when it was desperately trying to cut losses.

Second, the huge loss incurred by Mandala Indonesia Airlines, which was everything but a savvy decision at a time when Tigerair was pressured by the regional competition in a race to set up joint ventures and expand its network particularly in light of the impending full implementation of the Asean (Association of Southeast Asian Nations) open skies policy in 2015. The cost for that hasty misadventure amounted to S$35.3 million for the quarter. This widened the loss to S$65.2 million. The Indonesian carrier has since July 1 ceased operations with a provision for shutdown costs of S$14.6 million. On a note of forced optimism, Tigerair could look to an improved bottom line, as stated by CEO Lee Lik Hsin in a press release: “With the cessation, the Group will no longer be exposed to loss-making Mandala.”

Either way, Tigerair appears to be trapped, perhaps a victim of circumstances, but in cold business, that may only serve to amplify the weaknesses not of the market but of the player in question, only simply because it is all about the competition.

So did Mr Lee also say: “Despite the competitive operating conditions faced by Tigerair Singapore, our first quarter results showed a slight improvement over the last quarter.” Some consolation there; you choose the quarter for comparison as you deem fit. While corresponding quarters best take care of seasonal aberrations, consecutive quarters can point to a changing trend. The truth often lies somewhere in between, how much of it depending on how skewed the interpretation is presented. No one can argue the toss with Mr Lee. Figures don’t lie; what is more important is the reading of the story they tell.

For the same quarter ending June 30, Tigerair Singapore posted an operating loss of S$19.8 million, compared to an operating profit of S$5.9 million last year. However, by the same argument, it was an improvement over the operating loss of S$29.4 million in the preceding quarter. The point of contention is whether this is a sufficient indication of a turning trend, losing less. The good news was that revenue grew by 3.2% – but that was as far as it went – on the back of an increase in capacity by 14.8% resulting in a higher load factor by 0.8 percentage points which unfortunately was offset by lower yields by as much as 11.5%. The bad news is that costs went up by 19.9%.

Tigerair continues to gripe about overcapacity that has affected its bottom line. In the statement it issued, Tigerair said: “Tigerair Singapore continues to operate in a challenging environment due to persistent oversupply of capacity in the region.” That, we have to admit, is the crux of the competition. While soothsayers continue to raise the optimism of rising Asia, the truth is that the competition has intensified as the region becomes more liberal. This is exacerbated by the thin line between budget and legacy. Asean too may have oversold the dream of its open skies, and the proliferation of upstarts, whether independent or wholly/jointly owned entities, has brought about intra-airline instead of inter-airline competition that in the case of Tigerair sees it competing with sibling Scoot.

Tackling overcapacity can mean aggression or a retreat. Tigerair is already executing plans to ground eight surplus aircraft. With the cessation of Mandala operations, the Group will have four more surplus aircraft returned to the hangar.

In May when Tigerair replaced Mr Koay Peng Yen with Mr Lee at the helm, it said: “Tigerair Singapore had started the process of consolidating its services in preparation for a decisive turnaround in its prospects.” In his parting shot, Mr Koay said: “We have re-calibrated our strategy and taken the necessary steps to reposition Tigerair.” (See Can leadership change save Tigerair? May 16, 2014) Maybe it is still early days. Apart from the change of leadership, we are still none the wiser about that re-calibration unless it was all about shedding Mandala to mark the intended turning point. What else, one is apt to ask.

This article was first published in Aspire Aviation.

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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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