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Tigerair Fails to Soar In Second Quarter

Ser Jing - Tigerair Announces Virgin Saviour (pic) Singapore-based budget carrier Tiger Airways Holding Limited (SGX: J7X), or Tigerair for short, reported second quarter earnings yesterday evening and delivered mixed results.

The basic numbers

For the three months ended 30 Sep, revenue had dropped 16.7% year-on-year to S$164m. However, the budget carrier’s bottom-line had turned from a loss of S$18.3m in the corresponding period a year ago to a profit of S$23.8m.

Tigerair’s revenue had declined due to the sale of a 60% stake in Tiger Airways Australia to Virgin Australia in July 2013.

However, the sale had allowed the budget carrier to book a S$106m gain, which largely accounted for the turnaround in its bottom-line.

In actuality, Tigerair’s operating losses worsened from S$11.5m a year ago to S$12.8m for the quarter – there was no real improvement in the budget carrier’s underlying business.

Operational highlights and the balance sheet

Despite the poor showing by the carrier in its income statement, its operational statistics for the quarter had a few bright spots.

Some particular highlights include the number of booked passengers increasing 19.8% year-on-year from 1.02m to 1.22m and revenue passenger-kilometer (a measure of airline passenger traffic calculated by multiplying number of passengers with the distance travelled) growing 21.9% to 2,251 million rpk.

Of course, there were blemishes, which include a 6.6% decline in fare per passenger from S$103.3 to S$96.4. In addition, passenger load factor – a measure of the amount of utilisation of the total available capacity of an airline – had declined by 3.6% percentage points year-on-year from 82.1% to 78.5%.

Airlines are often susceptible to bouts of extremely high capital expenditures, as exemplified by the case of Singapore Airlines (SGX: C6L). Because of the need for significant amounts of capital, airlines might have to resort to borrowings. That is why investors have to check up on their balance sheets for signs of increasing leverage, which can pose financial risks for investors.

On that front, Tigerair’s balance sheet had improved rather significantly from a year ago. Cash on hand had increased from S$107m to S$332m while total debt had decreased from S$499m to S$409m. At the same time, total debt to equity has also gone down from 230% to 82%.

What’s next for Tigerair

Tigerair’s Singapore arm will be receiving three more Airbus A320s, ending the financial year with 26 aircrafts. The additional capacity provided by the new aircrafts will take time to be absorbed by the market, so look out for a lower passenger load factor and yield (the latter’s a measure of the average air fare paid per passenger per kilometre flown).

In Indonesia, Tigerair Mandala (an associate of Tigerair) is focused on the continued growth of its presence in the country by expanding its international and domestic networks, in addition to broadening its distribution channels by appointing more travel agents.

Tigerair Philippines (the aptly-named Philippines arm of Tigerair) will also be busy expanding its network and increasing its number of international flights.

Tigerair has significantly underperformed the Straits Times Index (SGX: ^STI) since the start of 2011. The former has shed almost 70% in market value even as the STI has remained essentially flat.

The budget carrier’s underperformance could perhaps be traced to its poor corporate results over its last two completed financial years. For Tigerair to start competing with the index on an even-footing again, it needs to improve its operating statistics (such as its passenger load factor and yield) even further. That’s something investors need to watch.

Valuation

Tigerair’s shares closed at S$0.56 on Thursday. At that price, shares of the budget carrier are valued at 0.6 times trailing sales – there’s no earnings to speak off as Tigerair is still loss-making over its last 12 months.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.