Tiger blames losses on stiff domestic competition
In an ominous sign for all of this country's airlines, Tiger has posted an operating loss of $S13 million ($10 million) in the three months to December, compared with a loss of $S8.6 million previously.
It brings to an end a gradual narrowing of losses over prior quarters as Tiger returned to full operation following its forced grounding due to safety concerns in 2011.
Tiger said the larger loss in Australia was largely due to a 12 per cent drop in yields - or returns from fares - due to "stiff competition in the domestic market and rising costs of operations". And it has warned that the intense competition in Australia will continue to keep yields under pressure in the near term.
The budget airline's costs rose by 75 per cent to $S86 million during the quarter as it began new routes, including Melbourne-Adelaide and Sydney-Mackay.
The battle between the country's four largest airlines has led to heavy discounting of fares over the last year. Qantas and Virgin Australia will reveal the extent of the financial pain next month when they deliver their first-half results for a period which is typically their strongest.
"The competition has kept both yields and load factors depressed," Tiger's chief financial officer, Chin Sak Hin, said.
The latest result takes Tiger's accumulated losses since launching services in Australia in 2007 to more than $216 million. The Australian operations again weighed on the performance of its parent, Tiger Airways Holdings, which is listed on the Singaporean stock exchange.
The parent company, in which Singapore Airlines is the major shareholder, made $S2 million in after-tax profits in the third quarter, compared with a loss of $S17 million previously. Its Singaporean flying operations made an operating profit of $S27 million in the latest quarter.
The Australian Competition and Consumer Commission will decide on February 7 whether to allow Virgin to take a controlling stake in Tiger's Australian operations.
Virgin's purchase of a 60 per cent stake is aimed at giving Australia's second-largest airline its own dual-brand strategy to counter Qantas and Jetstar. Under the plans, Tiger's Australian fleet will be boosted from 11 single-aisle A320 planes to up to 35 over the next five years as it takes on Jetstar.
Frequently Asked Questions about this Article…
Tiger Australia said its wider third-quarter operating loss was mainly due to stiffer domestic competition that pushed down yields by about 12%, combined with rising operating costs (which rose 75% as it launched new routes). These factors led to an operating loss of S$13 million in the three months to December, up from a S$8.6 million loss previously.
Tiger reported an operating loss of S$13 million for the quarter to December, compared with an operating loss of S$8.6 million in the previous comparable period.
The article states Tiger's accumulated losses since launching services in Australia in 2007 have exceeded S$216 million, with the Australian operations continuing to weigh on the performance of parent company Tiger Airways Holdings.
The battle between the country's four largest airlines has led to heavy discounting of fares over the last year. Tiger's CFO said this competition has kept both yields and load factors depressed, and the airline warned yields are likely to remain under pressure in the near term.
Tiger Airways Holdings, the Singapore-listed parent with Singapore Airlines as its major shareholder, made S$2 million in after-tax profit in the third quarter (versus a S$17 million loss previously). Its Singapore flying operations made an operating profit of S$27 million in the latest quarter.
Virgin Australia has proposed buying a 60% controlling stake in Tiger's Australian operations to support a dual-brand strategy against Qantas and Jetstar. The Australian Competition and Consumer Commission (ACCC) was set to decide on February 7 whether to allow the takeover.
Under the plan described in the article, Tiger's Australian fleet would be increased from 11 single-aisle A320 aircraft to up to 35 over the next five years. The airline also began new routes in the quarter, including Melbourne–Adelaide and Sydney–Mackay, which contributed to higher costs.
Everyday investors may want to monitor a few items highlighted in the article: continued pressure on yields and load factors from intense domestic competition, the upcoming first‑half results from Qantas and Virgin (expected to show the wider industry's financial impact), the ACCC decision on Virgin's proposed 60% stake in Tiger Australia, and any further changes in routes, costs and fleet expansion plans that could affect profitability.
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