Breakeven achieved…what’s next?
- Tiger Airways achieved an essentially breakeven position in 1QFY16, with a small core net loss of just S$2m, as the pace of yield improvement was below our expectations.
- Hence, Tiger will likely underperform our previous full-year profit forecast, which is why we have reduced our FY16-18 forecasts by 17-32%.
- We are still expecting Tiger to be profitable from this financial year onwards because of the low oil prices and the cancellation of the loss-making routes last financial year.
- We maintain our Reduce rating, because further gains would be more challenging to achieve and the level of absolute profits at the sector average CY16 P/E target of 11x yields a target price of only S$0.23, which is reduced from our previous target of S$0.27.
Highlights of 1QFY16
- Tiger’s core net loss of S$2m was a sharp improvement from last year’s S$61m loss.
- This was on the back of a turnaround in Singapore’s EBIT from a loss to breakeven, while there were no further losses from its associates in Indonesia and Australia, both of which have since been closed down or sold.
Yield improvements beginning to fade?
- Tigerair Singapore posted a third-consecutive quarter of yoy yield recovery, up 5.1% yoy.
- The yield improvement was due to Tiger’s efforts to cut loss-making routes and reduce ASK capacity since 3QFY15 (ended Dec 2014).
- Unfortunately, the loads dropped 1.2% pts yoy, resulting in the RASK (revenue per unit of ASK capacity) rising only 3.6% yoy, which is a big slowdown from the mid-to-high-teens RASK recovery in the immediately preceding two quarters.
- This suggests that Tiger’s early wins during its initial network restructuring is already fading.
- The yoy comparisons would get even more difficult in the final two quarters of FY16, because of the high base effect.
Lower fuel prices drive unit cost reductions
- Tiger’s unit costs (cost per ASK) fell 1.5% yoy in 1QFY16, as the into-plane fuel price fell to US$102/bbl, from US$125/bbl last year.
- Aircraft utilisation also rose 8% yoy to 12.2 hours/day, which helped spread fixed costs over more flying hours. These were partially offset by an increase in maintenance cost provisions and higher depreciation from a reduction in the useful life estimate of aircraft.
- Overall, Tiger is surrounded by regional LCC heavyweights with lower-cost bases, so the longer-term outlook for Tiger remains cloudy.
(Raymond YAP, CFA)
Source: http://research.itradecimb.com/
