Tiger Airways Australia in Mega Trouble

[Evan]

CrazyDave, i think post sounds likes its right on the money ! As you say it will be interesting times ahead.
E

[Sunstar320]

Where to begin? Let's start with the basic strategy.

• Tiger calls itself the "Ryanair of Asia" although Ryanair obviously don't feel flattered by the comparison. Most of Ryanair's airport pairs (as opposed to city pairs) are monopolies which has certain cost and market/catchment advantages. Tiger has to compete head-to-head with other airlines that have corporate travellers up front that allow them to offer cheap fares down the back. Tiger has to sell most of its fares below cost and can't sell enough above cost to keep it in the black.
• Tiger does not have any cost advantage over Jetstar - it has 3 seats more per aircraft but this is offset by its lack of scale and splitting its 12 aircraft operations over 2 AOCs (doubling overhead).
• Ryanair has huge economies of scale and just doesn't have to advertise because everyone in Europe knows its website. Tiger is too small to be on the radar here and doesn't have the cash to advertise properly.
• Ryanair operates a few hundred identical aircraft in high density configuration - 9 more seats per aircraft than Virgin Blue. Tiger has a total of 12 aircraft between SIN and AUS and is already introducing a second type. But wait there's more. This second type will have 12 fewer seats in it than easyJet has in the same aircraft, so not only do they get a higher cost aircaft and complexities of a second type that Ryanair avoids, it gets the aircraft in a high cost configuration.

So that's why Tiger is already in a big hole before the Global Financial Crisis. Now the twist is that to finance its ongoing losses, Tiger has already mortgaged its future deliveries with sale and leaseback arrangements, but it has to stump up some cash known as PDP (pre delivery payments) - and right now no-one is lending. So the reason you haven't seen Tony Davis in the press here recently is that he is frantically trying to get cash to pay for future deliveries. And to try to resurect the proposed joint venture with Incheon City which has been grounded. And to try to finalise a deal with SEair in the Philippines which also now looks like coming unstuck. If you look back to Tiger's early presentations to industry forums you will see that Australia literallly did not figure on their map when they were claiming that they would open a new base every 12 months. They only came to Australia because it was the only place they could put the aircraft thanks to our liberal aviation regulation which makes it one of a handful of countries in the world that allows fully foreign owned companies to set up a domestic airline (which is what VB was when it started).

While Temasek and SQ have very deep pockets and a long term horizon, the venture capitalists who they are in bed with do not - and have problems of their own (i.e. no cash) due to the Global Financial Crisis. So it will be interesting times in the Tiger boardroom when Tony Davis comes asking for more cash to keep the airline going - because with the recession we are going to have here and is already underway in Singapore they are going to need a lot of it. And the crews know it and are taking off for the security of other Australian airlines and the sandpit. It will be an admission of failure if Singapore Inc has to tip more money into Tiger and dilute its partners who refuse to follow suit. Interesting times.

cheers

CrazyDave98

Well Tiger:
-Do have lower operating costs than Jetstar in some aspects. They have low overheads, and dont go spending money everywhere on things that are not necesary to run the operation...like self-checkin kiosks/use of aerobridges etc. Wages/Salaries are also lower than the main competition, so again, there are not as many costs to factor in to companies like Jetstar.
-You mention of a long term timeframe is very accurate. There was a board meeting last week with Tiger Australia actually, and there are big long term achievements for TT. Also, dont compare Tiger Australia, to Tiger Singapore. They might be under the same brand, but they are run differently, and are operating in VERY different regions.

Last week many things were discussed in the Board meeting, Im certianly not going into detail here. I will say that, Tiger Australia is NOW the first prority amongst Tiger Aviation. The shareholders are VERY happy with how the operation is going, and TT are in the right place the shareholders want it to be. Plans are big, and you will be VERY SUPRISED about what is coming to TT soon...

All those Journo's and reporters out there whining that Tiger Australia wont make it through because of losing money, is a pile of &%$#. They are NOT going anywhere, anytime soon. TT have big and challenging plans ahead, and this is going to blow the competition away. Start up costs have to be taken into account. How much do you think it costs to set up a high capacity jet RPT operation from scratch?? Millions and millions - the cost of aircraft acquisition, infrastructure setup, recruitment and training (before the first flight gets airborne), the cost of gaining a high capacity AOC alone costs millions. These costs, and more, all have to be taken into account - and no jet operation in the world will make money in the first year. Do the writers of these stories mention any of that?? Of course not - that would water down his story wouldn't it! It took TR 4 years under a similar model to start making some attractive dough also. TT loses money in their first year, they are doomed apparently!

It has been a while since Australia has had a fresh new Jet-operated airline, and a new airline start up and its opening structure has yet to be seen fully developed lately. Jetstar got 717's from QF, and are using their terminals, hardly anything worth losing money over...This company might not be making money till 2010, but their are plans in place, dont you worry. 60 more A320's coming to Tiger Aviation by 5years. Now who did I say was the main priority??

In concluding my comments, you will be suprised guys, the operators of TT will strongly be developing Australia like never before. They are not here to leave, and they are not going to leave. The board meeting explained this. They have the whole country to encounter, and the managment of TT want every piece of this country...TT will change Australian LCC travel in the coming 5 years.

[docjames]

Two fantastic posts.

Sunstar - what relationship do you hold with Tiger out of curiosity? You imply you have fairly thoroug knowledge of their plans for the future. Clearly you're not in a position to give more away about those (nor would we expect you to), but it would be useful "disclosure" to know your relationship with Tiger. Cheers.


Dave - i think you've very very clearly summed up the reasons why everyone is questioning tiger's long term prospects - if margins are similar to imcumbents, the new guys ends up getting hurt in most businesses unless they offer somethign substantially different / niche. Most would argue Tiger's model is not THAT different to JQs really (I'm sure sunstar will disagree).


I agree with sunstar that journos talking down anyone is bad for business (have a look at mitsubishi and the 380 to see what negative press does for sales), and journos dont usually offer the full facts as it gets in the way of a headline.

If every player in the market was strong, it can only be good for the customer. If each carves out their own niche, they'll all prosper. Currently, my feeling is TT doesnt offer enough difference to JQ, and DJ has a way to go now they've moved more "upmarket" - but they had no choice as they couldnt drag themselves downmarket as there was no way to get to JQ/TT's price base.


One wonders if long term:

QF/JQ as currently

TT/DJ form an alliance.

Either that, or one or more players will probably go out of business (at least historically, that's the likely outcome). If enough niches are found, or market grwoth occurs, then all players can survive, not necessarily in exact current formats.



(= my $0.02)

[straitman]

Sunstar320,

I'm having trouble aligning your posts #1 & #12 on this thread. They seem to me to be contradictory.

Could you please elaborate

[FL360]

I look at the profitability of TT in a simple way,
since I do not have access to any of their insider information.

1. Their base is in Melbourne and Adelaide.
2. Their customer base is mostly private / personal / self funded.
Business people will continue to prefer to stay out form TT flights to
have the feeling of being respected for their career.

The simple question will be do pax in these two cities willing
to fly with them / travel frequently ? for example MEL=>OOL, after you went there how frequent will you go back ? or do you want to try other destinations for leisure ?

There are two main groups of people who are tiger's main customer base:
1. Uni => pre work, they probably will travel with TT once or twice and they will save the $$$ for other destinations / gap year
2. working people => they will only go to the gold coast / alice springs once or twice then again they will try to save the leaves to go somewhere else.(somewhere out of direct A320 range)

I was recently looking at their MEL<=>ADL flights, a lot of them are still $29, excluding check in luggage and seat allocation and convenience fees of course, but you wonder at those fares whether they can actually make any money....

OK
Fuel :
1 hr of A320 flight => 850 USgallon of Jet A1 => 1700 USD => 2428 AUD => 14AUD assuming 100% load factor.... fuel only

Leasing of the plane :
A320 cost 75 USD Mil => say 100 AUD Mil => Interest payments say 8% so 8mil AUD => say fly 12 hrs everyday that's
4380 hrs per year, so per hour Interest payment 1826 AUD => $10 per seat assume 100% load factor...

Of course you have insurance, crew, maintenacne etc...

Australia is huge in size, but compare with Europe our population (especially outside capital cities) and number of medium sized cities are nothing....

[Starship]

Two fantastic posts.

Agree - different sides of the argument and both have merit.

My understanding is that Ryan Air (historically) has made more out of the sale of second hand aircraft, than they do from bums on seats, by leveraging the uplift from the heavy discount received on volume purchases of aircraft. [and the founders / exec's, with due respect to the now deceased Tony Ryan, and full accolades for their entrepreneurial spirit - underpin property development leveraging the enhanced property values arising from the announcement of new 'destinations' which can be on sold to holiday making Brits travelling there directly on Ryan Air].

One wonders if long term:

QF/JQ as currently

TT/DJ form an alliance.

Where does ReX fit into this equation - or just as the take out party for DJ?

I'm having trouble aligning your posts #1 & #12 on this thread. They seem to me to be contradictory.

Could you please elaborate

Have the same question - why commence a thread questioning the company based on a Newspaper article, if you are privy to the negotiations and outcomes around the Board table? Why not just ask the Chairman / CEO?

[Starship]

This company might not be making money till 2010, but their are plans in place, dont you worry. 60 more A320's coming to Tiger Aviation by 5years. Now who did I say was the main priority??

I do acknowledge Airbus' order book for A320's lists Tiger Airways ordering 66 aircraft, 8 of which have been delivered to date. [I presume the other 4 they have are leased from another party].

[docjames]

Rex = Niche. Sorry to leave them out.

If their market gets encroached too much, they're going to be in strife and bought out.

Small route players in Aus dont seem to last all that long but Rex is extremely well run and has done very well to date.

[Starship]

Rex = Niche. Sorry to leave them out.

If their market gets encroached too much, they're going to be in strife and bought out.

Small route players in Aus dont seem to last all that long but Rex is extremely well run and has done very well to date.

I do not disagree, but they seem to be on the front foot and now own just under 5% of DJ!!

[Sunstar320]

Sunstar320,

I'm having trouble aligning your posts #1 & #12 on this thread. They seem to me to be contradictory.

Could you please elaborate

Things have changed since the shareholders have had their say. Its their investment, and they say what they want, which is very promising in the coming years...

Getting their brand out there, and lifting their load factor is certianly one issue to be resolved. If you have noticed, TT are currently advertising their product a lot more (eg-on radio-Triple M's Morning sponser, Herald Sun every week, etc..). Load factor on certian routes could be lifted, most certianly during the week on MEL-ADL...