Home' Asian Aviation : AAV Feb 2014 Contents 6 AsianAviation | FEBRUARY 2014
The festive period saw a rash of activity in the
South East Asian LCC sector, with Tigerair at
the heart of much of the action.
The Singapore-based LCC decided to
cut its losses in the Philippines, selling its
40% stake in Tigerair Philippines to Cebu
Pacific for US$7 million in early January. At
the same time it has written off a S$84.5
million (US$66.8 million) shareholder loan to
Tigerair Philippines predecessor SEair.
Cebu Pacific plans to run Tigerair
Philippines as a separate entity, for the time
being at least, and will sub-lease three Airbus
A320 aircraft from Tigerair Singapore. Cebu
Pacific CEO, Lance Gokongwei, said the
deal will help his carrier to deal with capacity
restrictions out of Manila.
There could be further losses for Tigerair
down the road. "While Tigerair has written
down the value of Tigerair Philippines to nil,
it will still record a net loss of S$13.5m after
deducting the consideration of S$8.9m,"
notes K Ajith, analyst at UOB Kayhian.
Ajith says this is "Not the best deal for
Tigerair. The airline had originally purchased
a 40% stake in SE Air for US$7m after
converting an earlier loan into equity. In total,
it had invested S$84.5m but will not receive
anything upon disposal, due to losses from
the unit. Further losses are also likely based
on future forward sales and liabilities. The
only positive side to this is the fact that SE
Air will no longer be a drag on earnings and
balance sheet." Tigerair s share price has
plummeted from $0.79 on 15 January 2013
to $S0.49 a year later.
The Tigerair Group is one of four LCC
groupings with Pan-Asian ambitions, but is
quite a way behind the other three - AirAsia,
Lion Air and Jetstar. In December last year,
the four Tigerair carriers in Singapore,
Indonesia, Australia and the Philippines
offered 1.3 million seats. This compares with
2.9 million for the Jetstar Group, 4.8 million
for Lion Air Group and 5.7 million for the
AirAsia Group of airlines (see APAC LCCs
battle it out, p50).
Tigerair is trying to deal with this lack of
scale through a series of strategic alliances,
not least with Cebu Pacific, in what Group
CEO of Tigerair Koay Peng Yen terms an
"asset light" strategy. Cebu Pacific and
Tigerair will jointly market their routes through
an interline agreement.
This follows a similar agreement with
India s Spicejet, while Tigerair is in the
process of establishing a broad-based
alliance with long-haul LCC Scoot (both have
Singapore Airlines as a shareholder). It is
also setting up a joint-venture with China
Airlines to form an LCC in Taiwan, in which it
will hold a 10% stake.
Koay insists that this system of alliances will
enable the group to achieve the scale that is
crucial for success in the LCC world. "Scale
is important, but you can have real or virtual
scale," he says.
Meanwhile, Scoot itself has also set up a
strategic partnership with Thai short-haul LCC
Nok Air that will concentrate on medium-to-
long hauls routes. NokScoot will be based at
Bangkok s Don Mueang International Airport
and will operate widebody aircraft.
And back in Singapore, Scoot and
Tigerair have submitted an application to the
Competition Commission of Singapore for
Approval would allow the airlines to build
upon their existing interline cooperation,
which currently enables passengers from
outside Singapore to purchase itineraries
involving the services of both airlines, for
example Jakarta to Singapore (operated by
Tigerair), and onward from Singapore to
Tianjin (operated by Scoot).
The present cooperation is mainly aimed
at travellers who live outside of Singapore,
but the proposed enhancements would target
Singapore residents as well.
"These 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 the way for a
seamless integration of systems and improved
connectivity," said the carriers in a statement.
Tigerair will hold a 10% stake in its joint-
venture with China Airlines, Tigerair Taiwan,
which will have a paid-up capital of NTD
two billion (US$68 million). Koay, said, "The
new joint venture will allow us to extend our
presence into the new, untapped markets of
Taiwan, Japan, and Korea."
Sun Hung-Hsiang, the chairman of China
Airlines, said: "China Airlines knowledge
of the Taiwan market coupled with Tigerair s
expertise in the no-frills sector should stimulate
demand in the civil aviation market here."
-- Colin Baker
Tigerair is going for an "asset-
light" strategy in the dash for
growth before ASEAN Open
Skies in 2015
Tigerair goes for virtual growth
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