Tiger Airways will be caged in the red

Skyrocketing costs and sketchy utilization of its Australian fleet have defanged the airlines for what could be a long time.

It will take quarters of cost-cutting, rebuilding and passenger upsurge before Tiger Airways can rise out of its net loss predicament, says DBS, and sticking to its guns just might be its best survival option.

Here’s more from DBS:

Too much capacity. The Australian operations continue to be impacted by under-utilisation of fleet as the airline has been flying a reduced number of sectors since the lifting of its suspension. Of the 10 aircraft stationed in Australia, we reckon only about 6 are necessary currently. But efforts in Australia are bearing fruit, as they have received permission to fly 38 sectors now (up from 32), and are looking to establish a second base in Australia by mid-2012. Over in Singapore, Tiger ramped up capacity by almost 70% in 3Q12, but the demand on new routes and frequencies has likely been slower than expected, as overall passenger load factor stood at only 79.5% during the quarter, compared to 87.2% in 3Q11.

Turnaround uncertain. Apart from the high fixed costs, high fuel costs continued to dent profitability, and the 13% y-o-y increase in total average passenger fares in 3Q12 was not enough to make up for the 33% y-o-y rise in jet fuel prices. This will continue to impact Tiger's profitability in the coming quarters as well. While the group is focused on rebuilding its business in Australia under a new management team, and looking to deploy additional aircraft to its new 33%-owned Indonesian associate, PT Mandala Airlines, we believe profitability is still some way off.