TIGER AIRWAYS (DMG)

SELL

Price S$1.04

Previous S$0.62

Target S$0.62

Australian ban lifted; Losses to mount in FY12

Tiger Australia to re-commence from Aug 12. Tiger Airways Australia (TAA) will recommence

operations from 12 Aug, following the lifting of suspension of its Air Operator’s

Certificate (AOC). However CASA has imposed certain conditions on the LCC including an

initial limitation of 18 sectors per day for the month of Aug 2011. As expected, TAA announced it will scale down its network and operations in Australia with the redeployment of two A320s and closure of its Adelaide base. All staff are being offered redeployment to its Melbourne Tullamarine base, and hence, we suspect it could shut down Avalon as well. First route to recommence would be Melbourne-Sydney. We expect a gestation period for demand to pick up following recent negative publicity with Tiger aggressively slashing fares to attract passengers. To add to the challenging operating landscape in Australia, the Government has proposed to charge a carbon price of A$23 per tonne to domestic airlines via an increase in aviation fuel excise to which TAA estimates will be ~A$3 per passenger. The LCC is, however, confident on passing this cost down to the passenger.

July 2011: Pax down 32% YoY. Tiger reported a 32% YoY fall in passengers carried to 358k

for the month of July 2011 with load factor declining 3ppt to 86%. This is due to the grounding of its Australian fleet for the month.

Revising fleet assumptions and expecting lower yields. We have revised our fleet assumptions from 33/39 to 35/43 for FY12/13 as management conceded they might lease their A320s to external parties but will not delay any deliveries. Consequently our ASKs and RPKs are increased by 5.7%/10.8% for FY12/13 respectively. We maintain our load factor assumption of 81% but lower our yields by 9.9%/0.6% for FY12/13 as we expect Tiger to discount fares aggressively to attract traffic.

Expect to FY12 to end at a loss. 1QFY12 registered a net loss of S$20.6m, which resulted

from higher fuel costs and a two week disruption to its Australian operations as a result of the Chilean volcanic ash cloud. While fuel prices have eased, we expect the five week grounding of Tiger Australia and consequently weak demand and aggressive discounting of fares to lead to deeper losses in 2QFY12. There will also be one-off costs from legal and consulting fees following the court proceedings in Australia. We are also concerned on the Group's net gearing levels which hit 2.76x in 1QFY12 and will hit 4x by end FY12, leading to a potential cash call.

Maintain SELL with lower TP of S$0.62. Tiger is currently trading at 3.3/2.7 FY12/13 P/B vs

its peers at 2x. Based on our revised earnings, we lower our TP to S$0.62 (previously S$0.74), pegged at an unchanged 2x FY12F P/B.