Re-engineering SIA’s Tigerair

by TOM BALLANTYNE FROM BALI  

December 1st 2015

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Tigerair would go private if Singapore Airlines succeeded in taking full ownership of the low-cost carrier, delegates were told at the annual Assembly of Presidents of the Association of Asia-Pacific Airlines (AAPA). Read More »

If Singapore Airlines (SIA) was successful in its bid to have 100% ownership of Tigerair, it would be integrated into the airline group with the intention of producing commercial and operational synergies for the company, said the carrier’s CEO, Goh Choon Phong, during the CEO panel discussion at the annual gathering last month.

Going private would give us “greater integration of Tiger and Scoot (SIA’s wholly-owned medium to long-haul LCC) so they can be much more effective in feeding each other”, he said.

SIA owns 55.8% of Tigerair, with the remaining equity valued at US$322 million. The offer will be funded from its “internal cash resources”, SIA has said.

Goh has spent several years re-engineering SIA’s operations, converting them into a multi-brand offering that includes the mainline full-service carrier, regional full-service airline, Silk Air, and low-cost carrier, Scoot. While SIA already was the majority shareholder in Tigerair, buying the remaining shares would give the parent company full control over the interaction between the carriers.

SIA’s net profit for the three months to September 30, climbed 135%, to $154.754 million, over the same three months a year earlier. The result was boosted by higher dividends from long-term investments and the absence of share losses from associated companies after it classified Tigerair as a subsidiary.

Tigerair has been consistently losing money in recent years as it faced intensifying competition from other regional budget carriers including AirAsia, Cebu Pacific and Lion Air.

However, in the three months to June 30 its performance improved. It reported a net loss of $1.2 million compared with a $45.8 million loss in the same quarter a year ago.

Shukor Yusof, an analyst with Malaysia-based aviation research firm, Endau Analytics, said that because Tigerair has been performing terribly it was prudent for SIA to bring the budget carrier into its stable of companies.

“It will help realign the balance sheet of Tigerair, but at the same time, it is not going to guarantee profitability for Tigerair in the near future,” he said. SIA needed Tigerair to complete its portfolio, he believed, especially when Singapore is building another terminal at Changi to maintain the city-state’s edge as a regional air transport hub.