Tiger Faces ‘Monstrous’ Battle as Australia Flights Resume After Grounding

Tiger Airways Holdings Ltd. (TGR), the budget carrier part-owned by Singapore Airlines Ltd., resumed Australia flights today, about six weeks after being grounded by regulators because of safety violations.

The airline initially will fly only on the Melbourne-Sydney route, Australia’s busiest, and it has curtailed services to 18 flights a day nationwide for the rest of the month. The carrier also is improving pilot training, crew scheduling and fatigue management, as well as hiring more qualified personnel.

Tiger was selling round-trip tickets for the 90-minute flight from about A$100 ($103) online, including taxes and fees, less than half the price of Qantas Airways Ltd. (QAN)’s mainline and budget units. That may not be enough to overcome passengers’ concerns following the grounding, said Douglas Dow, an associate professor at the University of Melbourne’s business school.

“It will be a monstrous, uphill battle to come back from this,” he said. “The whole reason they appeal to people is low price, and too often that is associated with cutting corners.”

The Singapore-based carrier sold 1,500 seats in a day after resuming sales yesterday, Chief Executive Officer Tony Davis said in an interview at Melbourne’s Tullamarine Airport ahead of the first flight. Davis has personally taken charge of the Australian unit, after the former head left. His group responsibilities have been assumed by Executive Director Chin Yau Seng on an interim basis.

“There is a confidence issue we need to build on, but it is a business model that has been proven around the world,” Davis said. The carrier plans to stay in Australia for the “foreseeable future,” he said.

Suspension Cost

Regulators grounded Tiger after one of its planes came into land too low in Melbourne on July 1. The airline was already under a safety review.

The suspension has cost Tiger more than A$10 million, said Davis, who will continue to run the Australia operations until a new unit manager is found.

“We are looking for a new Australian head but there is no rush,” he said. “There is no prescribed timeframe for when I need to get back to Singapore.”

Tiger, 33 percent owned by Singapore Air, fell 1 percent to S$1.01 in Singapore trading today. It has dropped 15 percent since flights were suspended. Qantas has fallen 18 percent in Sydney in the period, while Virgin Blue Holdings Ltd. (VBA), parent of Virgin Australia, the nation’s second-biggest carrier, has declined 19 percent.

Fleet Cut

Tiger has pared its Australia fleet to eight Airbus SAS A320 aircraft from 10 because of the reductions in service. It also shut a base in Adelaide and temporarily closed another one in Avalon airport, near Melbourne. The carrier can apply to the Civil Aviation Safety Authority for permission to expand service at the end of the month.

The fleet cut will reduce Tiger’s share of domestic capacity to about 4.5 percent from about 5.5 percent, said Scott Carroll, an analyst at JPMorgan Chase & Co. in Sydney. The carrier’s return to operations may have little effect on the domestic leisure-travel market, which is already weighed down by excess capacity and higher fuel costs, he said.

“While Tiger’s presence may delay the pace of a recovery, its market share is relatively small,” he said in an Aug. 11 note.

Qantas is also shielded by its dominance of the corporate- travel market, Carroll said. Qantas, including Jetstar, has about 65 percent of the domestic market. Virgin Australia holds most of the rest.

Unprofitable Operations

Even before the grounding, Tiger had been unprofitable in Australia. The local unit’s operating loss in the quarter ended June 30 more than doubled from a year earlier to S$23.2 million because of higher fuel costs and disruptions caused by volcanic ash blown across the Pacific from Chile.

The carrier’s Singapore arm made an operating profit of S$7.5 million in the period. Operations at the Southeast Asia unit weren’t affected by the Australian grounding.

Tiger Australia had been under extra scrutiny since regulators issued a “show cause” notice in March asking why the carrier should keep its air-operating certificate. The regulator earlier imposed conditions, including improving pilot proficiency and better maintenance control.

The airline, which began domestic Australian flights in November 2007, has kept costs and fares down by charging extra for food, airport check-in and checked-in luggage.

To contact the reporter on this story: Robert Fenner in Melbourne at rfenner@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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