Will Tiger Airways roar back in 3Q12?

Its losses will be cut down over the coming quarters as its Australia operations take off to full throttle, says DBS.

Strong earnings from Tiger Australia coupled with seasonally high loads and yields in the 3Q will likely effect a turnaround in that period.

Here's more from DBS:

Meanwhile, Tiger Airways (Buy, TP: S$1.01) is taking to the sky again. In the case of Tiger Airways, the negative impact of high oil prices is likely to be offset by its operational turnaround largely because CASA’s decision to grant approval for Tiger Australia to operate a maximum of 64 sectors per day – implemented progressively from July to October 2012 – will put operations at par before the suspension last year. In addition, Tiger can deploy some of their new aircraft deliveries to Madala as the latter resume flights by April 2012. This would give Tiger Singapore more time to improve its loads and lift overall profitability for the group. We expect losses to narrow over the next few quarters and the group to potentially turn around by 3QFY13 (Oct-Dec 2012). We see Tiger breaking even for FY13 before registering S$67m net profit in FY14. With improving execution and better visibility, we have a TP of S$1.01 on Tiger.

Full utilisation in Australia by end-2012. CASA’s decision to grant approval for Tiger Australia to operate a maximum of 64 sectors per day – implemented progressively from July to October 2012 – will put operations at par before the suspension last year. This has paved the way for Tiger Australia to announce a second base in Sydney with three aircraft operating from July onwards. Management has even indicated the likelihood of adding an 8th aircraft to the Melbourne base by Aug 2012, signaling confidence in the Australian operations. 

Mandala will absorb most of new deliveries. Tiger Airways also previously announced that the Indonesian regulator has reactivated PT Mandala Airlines' Air Operator's Certificate (AOC). With the resumption of Mandala flights by April 2012, Tiger will lease three aircraft to Mandala initially, and rise to ten by end of FY13 (March YE). Indonesian requirement for new airlines to have a fleet of 10 aircraft within its first year of operations fits nicely with Tiger's plans.

On track to turn around, maintain BUY. Recent developments remove much of the uncertainties regarding deployment of its current and incoming fleet. Thus, Tiger Singapore will not need to absorb any new aircraft in FY13 (in fact 2 aircraft in its books will be deployed to Mandala), which will give it time to digest the significant capacity to be added in FY12 and improve loads. This should lead to better profitability and allow Tiger Airways to narrow losses over the next few quarters and potentially turn around by 3Q-FY13, a seasonally high period for loads and yields. We now expect Tiger to be near breakeven for FY13 and to register S$67m net profit in FY14. With improving execution and better visibility, we maintain our BUY call and TP of S$1.01. Key risk to earnings stems from high fuel prices.