Tiger Airways IPO takes off

In the first initial public offering of a low-cost Asian airline in five years, Tiger shares have been issued at $S1.50 a piece in the middle of an indicative price range of $S1.35 to $S1.65 to ensure a healthy after-market. The offer was oversubscribed by investors.

Investor enthusiasm for the float surprised industry insiders in Australia, who were sceptical of the float succeeding after the airline incurred sizeable losses last year in the face of stiff opposition from no-frills rivals Jetstar and Malaysia's AirAsia.

The two competitors announced a strategic alliance this month, which some insiders interpreted as an attempt to disrupt Tiger's float.

Singapore Airlines has not sold any shares into the float but its stake will be diluted from 49 per cent to 33 per cent while the Singaporean Government's investment arm, Temasek, will have its holding fall from 11 per cent to 7 per cent. US private-equity group Indigo Partners has offloaded 9.6 million shares to cut its stake from 24 per cent to 14.5 per cent.

Under a so-called "greenshoe option", RyanAsia, controlled by the founding family of Ireland's Ryanair no-frills airline, may reduce its stake from 16 per cent to as little as 7 per cent in the 30 days after Tiger lists on the Singapore Stock Exchange on Friday.

Tiger said in its prospectus that it was "well positioned to increase market share in Australia as a result of their lower cost base and attractive fares".

But industry insiders said Qantas, Jetstar and Virgin Blue would do their utmost to protect their market shares in Australia, where Tiger has seven A320s aircraft flying 20 routes.

Tiger has had a tough introduction to the Australian domestic market since launching services in November 2007. It incurred $79.3 million in losses within its first two years.

"Based on their history and their existing profitability, and the competitive situation in Australia, I really think they will be realising a hell of a lot more losses," an insider said. "They just have to turn around the business in Australia by such an extent I don't believe they can."

The low-cost airline plans to use about $S166 million of the funds raised for its aggressive expansion plans, which include increasing its fleet from 17 to 68 Airbus A320s by late 2015. About $S50 million will go to repaying short-term loans.

Qantas has also pinned its long-term growth prospects on expansion within Asia, which was reinforced by the tie-up between Jetstar and AirAsia.

"Everyone is talking about Asia being the potential driver of traffic growth," Deustche Bank analyst Cameron McDonald said yesterday. "The region seems to be the flavour of the moment in terms of people saying where the upswing in growth is going to come from."