Don't be blinded by Tiger hype: PhillipCapital

The airlines is basking in the positive news of its improving operations but doubts remain on its profitability.

Despite the headways Tiger Airways has made in Austalia, the industry as a whole, including the budget carrier segment to which Tiger belongs in, is still being hammered by sky high fuel costs.

This puts long-term earnings prospects in serious question, said the brokerage firm.

Here's more from PhillipCapital:

The gradual lifting of sector limits on TAA is within our expectations. One of the key reasons for poor profitability of TAA is the underutilization of its fleet in Australia. With gradual lifting of sector limits, unit fixed cost (read: aircraft depreciation expenses) would be lowered and profitability should improve.

Establishment of a 2nd base is also widely anticipated. However, the exact location of the 2nd base was not known. Previously, Scoot, SIA’s new long haul budget carrier had announced that they would fly to Sydney & Gold Coast in Australia. With a base in Sydney, we think that there is potential for a tie up between Tiger Airways and Scoot for traffic feed into each other’s network. We view this as a positive development for Tiger Airways.

However, the entire airline industry continues to struggle with high fuel expenses and Tiger Airways’ future profitability remains uncertain. Under high fuel price environment, ticket price differential between full service carriers and budget carriers is narrowed. At the same time, we believe that the ability of budget carriers to offer cheap fares to stimulate budget conscious travelers is lowered.

The share price of Tiger Airways could see some near term upside with the positive developments. However, after the initial exuberance, we opine that the market would refocus on the challenging operating environment for the airline.