30 December 2009

Tiger: An airline in need of cashflow

MELBOURNE - Another day, another Tiger Airways fare sale.

The latest Australia-wide Tiger sale this week offered a total of 30,000 seats from $20 for travel in February, May and August on select routes midweek.

2010 is the Chinese Year of the Tiger Ã¢â¬' and the year the airline plans to list on the Singapore Exchange ahead of an IPO (initial public offering) - but rivals like Qantas owned Jetstar are tracking the TigerÃ¢â¬â¢s every move.

Recently, there was an absorbing analysis in Crikey.com of TigerÃ¢â¬â¢s disclosure that it lost $50 million in the year to March.

Aviation writer Ben Sandilands concluded that it was funding the losses and expanding capacity from its receipts for forward bookings.

Hence the aggressive online sales activity.

Sandilands wrote, Ã¢â¬ÅâœTiger can remain unprofitable but keep cash flow positive provided it keeps growing those forward bookings strongly, which might explain why it has grown its fleet from four to seven aircraft and entered the Sydney-Melbourne route.

Ã¢â¬ÅâœIt is vulnerable, however, to increased losses, or anything that reduces or threatens the flow of cash from advance sales, until it can improve the actual profitability of its operations.Ã¢â¬~

Sandilands noted that Qantas, having had a lot of experience with attempted start-ups in the domestic market, recently announced it would add 700,000 new seats to its domestic Jetstar route network.

Ã¢â¬ÅâœIf it were to use Jetstar to mount a full-scale assault on Tiger it could cause the airline, and its major backer, Singapore Airlines, some discomfort,Ã¢â¬~ Sandilands wrote.

Tiger lodged its preliminary IPO prospectus with the Monetary Authority of Singapore on December 21.

Sources indicate Tiger is looking to raise S$250 million (US$178 million) through the initial shares offer.