Tigerair’s taking on New Skies

Ser Jing - Tigerair Announces Virgin Saviour (pic)

Low cost carrier Tigerair (SGX: J7X) announced three new strategic alliances with different airlines this morning that are part of its strategy to accelerate growth in the key Asian markets of North-east Asia, India, and Singapore.

To extend its reach into the North-east Asian market, Tigerair would be setting up a new Taiwan-based budget carrier, subject to regulatory approvals, in a joint-venture with China Airlines, a “leader in Taiwan’s civil aviation market.”

Tigerair would own 10% of the joint-venture, named Tigerair Taiwan, which would be operating under Tigerair’s brand as a no-frills carrier providing international air travel services in North-east Asia. Tigerair Taiwan would be tapping on Tigerair’s website as its main sales and distribution channel.

Elsewhere, India’s aviation market has been projected by Singapore Airlines (SGX: C6L) and Indian conglomerate Tata Sons Limited as having high projected growth rates in the future and now it seems Tigerair wants to further tap on this growing market.

To strengthen its Indian operations, Tigerair has signed a three-year interline agreement with SpiceJet Limited, a “preferred low fare airline” in India, to improve connectivity between the flights offered by both parties.

Under the agreement, from 1 Jan 2014 onwards, customers flying with SpiceJet on its domestic network from 14 Indian cities would be able to enjoy “seamless” connection onto Tigerair’s Singapore-bound flights. Hyderabad’s Rajiv Gandhi International Airport would be providing logistical support, such as free porter services, to facilitate connecting flights between the two low cost carriers.

In addition, from the same date onwards, Tigerair’s customers from Singapore would also be able to have easy access to SpiceJet’s Indian network.

Finally, we come to Tigerair’s new alliance agreement with fellow Singapore-based low cost carrier Scoot, a subsidiary of full-service carrier Singapore Airlines. Both parties – Tigerair and Scoot – would be submitting applications to the Competition Commission of Singapore for anti-trust immunity for their new agreement.

Prior to this announcement, Tigerair and Scoot have already been collaborating by allowing customers to purchase itineraries that involve flights from both airlines but the main beneficiaries were travellers living outside Singapore.

With the new agreement, the budget carriers would be allowing Singapore’s residents to benefit too. The new agreement “could potentially include the joint operation, sales and marketing of parallel routes, which will offer customers increased flexibility and flight options. It could also include alignment of policies, conditions, pricing and scheduling, to pave way for a seamless integration of systems and improved connectivity.”

Tigerair and Scoot have been getting “good” market response for their past collaboration efforts in proving joint itineraries for travellers, and in particular, Scoot sees that there’s also “similar demand from Singaporeans for greater alignment.” It’s excited at the new agreement’s potential, as a result.

Koay Peng Yen, chief executive of Tigerair, commented on the trio of new strategic alliances: “We are excited to move forward with our alliance strategy, in line with our focus to growth our footprint in Asia. The partnerships unveiled today will help us to expand our network, attain greater cost-savings, and build a stronger brand presence in the region.

These alliances will enable us to tap on the strengths of our strategic partners and extend our presence into existing and new markets without taxing our balance sheet. They will also translate into greater travel options for our customers, and that is something we can certainly look forward to.”

Tigerair has been facing tough times over the past few years, with total losses for its last two completed financial years (for the 24 months ended 31 March 2013) coming in at S$150m. Its latest second quarter results, despite having posted quarterly profits of S$23.8m, actually saw no year-on-year improvement in its operations as quarterly operating losses worsened from S$11.5m to S$12.8m.

As a result of all that, total returns (including reinvested dividends and capital gains) from Tigerair’s shares from late Jan 2010 till today has been a negative 63%. Contrast that with the Straits Times Index’s (SGX: ^STI) small-but-positive 9% gain, and we can see how much Tigerair’s shareholders have been losing out over the past few years.

Any new initiatives by Tigerair to grow its business, and subsequently its profits and cashflows, should be welcome news for the budget carrier’s shareholders. But the airline industry is a tough one to compete in, as competitors often compete on price alone. It remains to be seen if Tigerair can indeed grow from these strategic alliances.

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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 writer Chong Ser Jing doesn’t own shares in any companies mentioned.