Is there a future for Tigerair?

Courtesy AFP

Courtesy AFP

IT has to happen, and it is happening. The anticipated increased control of the long ailing and unprofitable Tigerair by parent airlines in both Singapore and Australia was announced almost simultaneously, an unlikely coincidence.

Tigerair (Singapore)

Singapore Airlines (SIA) will increase its stake in Tigerair from 40 to a majority of 55 per cent. The low-cost carrier reported its biggest loss to date for the quarter July to September, posting a loss of S$182.4 million (US$145.9 million) compared to a profit of S$23.8 million last year. By January 2015, SIA’s stake is expected to increase to as much as 71 per cent following a rights issue to raise up to S$234 million.

Despite the growth of air travel in the region and budget carriers accounting for more than 50 per cent of the traffic at Singapore Changi Airport, Tigerair seems embattled by the competition. Tigerair CEO Lee Lik Hsin was “heartened” by SIA’s support, reiterating the familiar standard strategy for a turnaround: “We have resolved our excess capacity issues and we also stemmed further losses from overseas venture.” Overcapacity was already cited in the preceding quarter’s report. In May the carrier said in a statement: “Tigerair Singapore had started the process of consolidating its services in preparation for a decisive turnaround in its prospects.” The carrier had since ended its costly partnerships in the Philippines (Tigerair Philippines) and Indonesia (Tigerair Mandala).

Granted, it may be early days. Yet how different would SIA’s increased dominance make in the future of the ailing Tigerair? Hitherto, the SIA hand has long been suspected to be writing the Tigerair story. Underlying the appointment of Mr Koay Peng Yen – Mr Lee’s predecessor – as CEO of the carrier was the expectation that Tigerair would benefit from an injection of new ideas from outside the SIA family, but that apparently had not seemed to work. Even with a makeover involving a name change and logo, the carrier continued to bleed. Replacing Mr Koay with someone from within the SIA Group only affirmed the parent airline’s intention to reassert a greater influence to hopefully steer it back to profitability. (See Can leadership change save Tigerair? May 16, 2014)

SIA in its own right continues to be one of the world’s most successful airlines in aviation history, and among the best for premium service. But the same could not be said of its investments outside the airline in joint ventures and subsidiary operations. The name itself should work some magic on Tigerair, yet it does not as the budget carrier faces stiff competition from the likes of AirAsia and Jetstar, including even sibling Scoot. It has long suspected that the day would come when SIA divests its stake in Tigerair, as it did with the Australian offshoot with first a majority share sale of 60 per cent to Virgin Australia and then finally relinquishing it totally for A$1. Further efforts to save the Singapore-based Tigerair may yet lead to the same outcome of counting the days for the carrier. It does not make sense for SIA to operate or maintain two budget carriers within its fold if they are competing for the same market within the region, although Scoot is supposed to ply medium to long-haul routes. Besides, there is also regional carrier SilkAir, albeit a full-service airline. (See Is Singapore Airlines better off without its subsidiaries? Aug 6, 2014)

Tigerair Australia

Is Virgin Australia in the same dire straits as SIA to have gone this far that it only makes sense to continue going?

Observers may be surprised by Virgin buying the unprofitable Tigerair Australia for A$1 (US$0.88). But its complete takeover of the budget carrier was hardly a surprise. Virgin’s earlier 60-per-cent acquisition augured the complete divestment by SIA in a matter of time. Troubled carriers have been known to be sold for a dollar, such as Malaysia’s AirAsia which was transferred from a government conglomerate to new owner Tony Fernandes for one Malaysian ringgit (US$0.26). But note that such acquisition usually comes laden with heavy debts. Mr Fernandes’ success in turning around the heavily indebted AirAsia into Asia’s largest budget carrier might offer the much needed optimism for the ill-reputed Tigerair to look ahead to better days under Virgin’s undivided attention

Virgin chief executive John Borghetti said: “We will benefit from the economies and achieve profitability ahead of schedule by the end of 2016.”

Unlike its Singapore counterpart, Tigerair Australia is less buffeted by competition though not necessarily less intense competition. Virgin’s interest in Tigerair is fueled by the competition posed by Qantas’s subsidiary Jetstar; Tigerair would provide an expanded network and the necessary links domestically. To that end, Virgin may have already achieved the satisfaction of knowing its rival is now more wary of its presence. In view of the subdued domestic demand (which Qantas has also cited as affecting its domestic operations), Virgin would slow down the growth of Tigerair than originally planned. Mr Borghetti said Tigerair’s fleet is likely to be reduced. The general consensus in the industry is that with full control of the budget carrier, Virgin is probably in a better position to speed up its plan to improve Tigerair’s performance. Q1 losses from Tigerair Australia amounted to A$11.6 million.

So, is there a future for Tigerair? The ground may be more favorable in Australia as demand in the domestic market improves. In Singapore, SIA may already be thinking of how else it may metamorphose the loss-making carrier.

This article was first published in Aspire Aviation.


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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