Analysts unimpressed with Tigerair’s profitability prospects in FY16

Although losses narrowed in Q4.

Analysts are still cautious on Tigerair’s future profitability prospects although the group’s losses narrowed in the fourth quarter.

Analysts warn that Tigerair’s fundamental problem, namely a supply glut in the ASEAN market, might dampen the group’s results in FY16.

Eugene Chua of OCBC Investment Research stated that while the budget carrier will benefit from cheaper fuel costs, the regional overcapacity issue translates to yield uncertainty in coming quarters.

“While the effort to collaborate with SIA group is making progress, we think Tigerair’s turnaround still has some way to go with slow recovery expected over the next two years,” Chua noted.

CIMB analyst Raymond Yap noted that although tougher times are ahead for the budget carrier, Tigerair’s management still deserves recognition for making “hard decisions” to cut unprofitable capacity even if it meant reducing aircraft utilisation.

“But this could have been the easy part. It would be much harder to improve profits materially from this point onwards since the ASEAN aviation markets remain very oversupplied, putting aside the drop in fuel prices. For this reason, we think Tiger is still vulnerable,” Yap said in a report.

UOB Kay Hian analyst K Ajith noted that Tigerair’s choice to increase its depreciation and maintenance provisions similarly highlight residual value risk of aircrafts in its fleet. 

“Overall capacity will decline in FY16, given that Tigerair is disposing off its existing fleet. While this could potentially improve yields, the aggressive capacity cuts highlight the drastic steps that Tigerair is taking to reduce opex and excess capacity,” Ajith wrote.