Tiger Airways' low fares strategy working well: Phillip Securities Research

Below is the highlight from the research note of Phillip Securities Research on Tiger Airways May 23, 2011.

Keep the entry fare low & profit on the ancillaries
Tiger Airways’ strategy of keeping entry fares low, while profiting on the ancillaries looks to be working very well for them. Their low entry fares enabled them to consistently keep load factors high to reduce their unit fix cost. The key source of profitability for Tiger Airways really lies with its ability to entice customers to spend more on add-ons, which cost close to nothing to them. Average ancillary revenue is broadly on the uptrend staying high at S$22/pax for the quarter.

Fleet deployment across the network
Tiger Airways had disclosed that they intend to grow the fleet size across the Group to 35 aircrafts by end FY12. However, this net increase of 9 aircrafts from the current 26 could be deployed across anywhere across their network. Management had disclosed that they will likely keep the Australia fleet size at 10 aircrafts and will seek to deploy the rest of the net adds in Asia. We believe that a significant no. of aircrafts would be deployed to its JVs, as we estimate that Singapore would likely require 3-4 additional aircrafts to grow its capacity by 40%.

Growing as a Group
Tiger Airways used to be a much simpler business with two main subsidiaries of Tiger Airways Australia and Tiger Airways Singapore. However, the Group had disclosed plans to setup joint ventures in Thailand (Thai-Tiger: 39.0%), Philippines (SEAIR: 32.5%) & most recently Indonesia (Mandala: 33.0%). SEAIR had commenced operations with 2 aircrafts, while the commencement date of operations for the other two JVs are still not clear at the moment. We believe that these 3 JVs would collectively require the balance of the net increase in aircrafts to be delivered in FY12. We opine that this strategy of setting up partnerships across Asia would give them maximum flexibility of deploying their fleet to seek the best potential returns. However, we had not factored in potential earnings and investments into these JVs yet as earnings visibility are unclear at the moment.