Tiger's bite softened by Australia

Tiger Australia’s breakeven is forecast to be delayed.

CIMB noted:

While Tiger’s turnaround is underway, potential roadblocks in Australia trigger a downgrade from Outperform to Neutral. We now forecast bigger FY13 losses and cut FY14-15 EPS by 6% for lower yields and SEAIR losses. This and a rollover to CY14 reduce our target price based on 13.5x P/E, the LCC industry’s 5-year forward average (prev. 20x based on +1sd).

Capacity on Tiger Australia’s top routes will increase by 16% in the Oct-Dec quarter. We estimate that this will lower load factors by 2-3% pts. Competition between Qantas and Virgin Blue could put a cap on yield. This, plus higher fuel prices, suggests that Tiger Australia’s breakeven could be delayed.

While Australia’s outlook seems challenging, Tiger Australia should still be able to regain profitability in FY14. Advance bookings are still encouraging and load factors have been improving. With Tiger flying 64 sectors daily, fleet utilisation should rise in October.

Tiger Singapore posted its first operating profits in three quarters in 1QFY13. Load factors have been robust and the yield environment is still benign. In the near term, we see limited impact from Malindo as its initial focus should be on Malaysia-Indonesia routes.

Tiger recently completed its investments in SEAIR in the Philippines and Mandala, its Indonesian associate, has already taken to the skies. We expect the coming years to be capital intensive as we think Tiger has to bear lease rentals on behalf of associates until they turn profitable. Tiger has also committed to shareholder loans of up to US$40m for SEAIR.