Tiger Airways under threat, say analysts

SYDNEY – As Tiger Airways set out on an investor roadshow yesterday to launch its planned IPO in Singapore later this month, aviation and business analysts were studying the implications of the announcement in Sydney that Air Asia and Qantas low-cost subsidiary Jetstar had sealed a non-equity alliance.

The consensus is that an AirAsia-Jetstar alliance is bad news for rival Tiger Airways.

Stephen Bartholomeusz, writing in Business Spectator said, confirmation of the deal “couldn’t come at a worse time for Singapore Airlines-backed rival, Tiger Airways, which started marketing its proposed initial public offering this week”. 



“Tiger had already halved the size of its offering from $S500 million to between $S200 million and $S250 million, but faces considerable scepticism that it will be able get the float away at the prices being sought. 



“With negative equity, falling cash balances and massive commitments for new planes looming, Tiger needs new capital from somewhere.

“If it isn’t through a float it will presumably have to come from its existing shareholder base. 



“Given that one shareholder, US private equity firm Indigo Partners, wants out, and another, the Ryan family, want to sell down, capital would probably be predominantly from Singapore Airlines and the Singapore government-owned Temasek. 



“The prospect of two powerful and even lower-cost airlines co-operating throughout the region is a threat to Tiger’s stability.

“It has been able to operate, despite increasing losses, because by adding planes and routes it has been able to grow its revenues from forward bookings fast enough to cover its operating costs.

“If the growth rate slowed, it would have to re-think its model and would probably require a lot more capital,” 
Bartholomeusz wrote.

Ben Sandilands, in his Plane Talking blog, wrote that the Air Asia-Jetstar announcement “brings into sharp focus a future in which the two largest and most successful low cost franchises in the hemisphere intend to keep themselves strong enough to see off inevitable challenges from the emergence of similar competitors in China, Japan and South Korea”.

“In this sense, both Jetstar and Air Asia share the advantage of true cross-border branding, something that the Singapore Airlines controlled Tiger operation lacks, and the established national carriers in other parts of the hemisphere do not show any sign of recognising at this stage.”

The Centre for Asia Pacific Aviation (CAPA) offered this view:

“Asia Pacific LCCs are expected to play an increasingly dominant role in regional aviation over the next decade and already have significant order books for new aircraft.

“This is giving them a stronger voice in aviation matters ranging from government policy through to supplies of equipment, including aircraft and parts.

“The development of a coalition between two of the region’s leading LCCs will only strengthen this position, increasing their leverage and influence over suppliers and driving the changes the airlines need to grow their presence and lower costs.”