FULLY VALUED S$1.04 STI : 2,821.09
Price Target : 12-Month S$ 0.83
Tiger Australia will be back in the air shortly. The Civil Aviation Safety Authority of Australia (CASA) has lifted the suspension of Tiger Airways Australia effective 10th August 2011, following 5 weeks of investigations and talks with the airline. While the Air Operator's Certificate has been re-instated, it comes with a new set of conditions that Tiger Australia must adhere to. According to CASA website, these conditions address key areas of operational importance within Tiger Airways and will underpin ongoing improvements in the airline's safety performance. To continue to operate, Tiger Australia must comply with the conditions while they are in place.
Operations will be rationalised, as expected. As part of the conditions, Tiger Australia can only fly a maximum of 18 sectors per day initially during August 2011. Any increase thereafter will be subject to the regulator's approval. This is down from more than 30 sectors that Tiger used to fly previously. Following the lifting of the ban, Tiger announced resumption of ticket sales and gradual ramp up of services from August 12th. As we had highlighted earlier, the airline will be rationalising its fleet and the routes it operates on, initially focusing on only the most profitable routes like Melbourne-Sydney. Tiger Australia will consolidate its 3 existing bases into one base at Melbourne (Tullamarine) and operate with 8 aircraft, down from 10 aircraft previously. The additional 2 aircraft will be redeployed elsewhere in the Group's operations in Asia.
Weak operating numbers for July 2011. These developments are pretty much in line with our expectations and do not affect our FY12 estimates materially. Tiger reported very weak passenger numbers for July 2011 - as expected, with grounding of the Australian operations - with passenger numbers down 32% y-o-y and 35% m-o-m to 358,000. After the losses recorded in 1Q12, we expect another round of heavy losses in 2Q12. Without the benefit of forward bookings, Tiger's ramp up in Australia would be gradual and profitability would be difficult in the near term because of the weak initial loads and likely promotional fares. A lack of visibility in fleet deployment ex-Singapore and global economic uncertainties further cloud the horizon. Maintain Fully Valued with TP of S$0.83.
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