Tiger Airways Holdings Ltd. (TGR), the budget carrier partly owned by Singapore Airlines Ltd., ordered 37 Airbus Group NV (AIR) planes, canceling some existing orders as it opted for more fuel-efficient models.
The order for single-aisle A320neo planes is valued at $3.8 billion and is for delivery between 2018 and 2025, the airline said in a statement to the Singapore stock exchange today. Manufacturers typically give discounts on list prices. The carrier has the option to increase the order by up to 13 aircraft and also to convert the model to a bigger variant.
As part of the new purchase agreement, Tiger Air canceled existing orders for nine A320s as the new model, powered by Pratt & Whitney engines, will help the company save about S$40 million ($31 million) a year on fuel. An economic boom and a surge in travel demand across Southeast Asia have prompted budget airlines in Indonesia, Malaysia and Vietnam to buy new aircraft, stoking concerns about whether the industry is building more capacity than it needs.
“Combination of high number of people and fast-growing middle class, that’s rocket fuel for the airline industry in the long term,” Mohshin Aziz, an analyst at Kuala Lumpur-based Maybank Investment Bank Bhd., said by phone. This year, airlines are saying, “We’ve grown too fast and need to pace down,” he said.
The planes that Tiger Air canceled were for delivery between 2014 and 2015, according to the statement. The company operates its airline under the brand name Tigerair.
Shares of Tiger Air rose 1.2 percent to 41 Singapore cents as of 11:30 a.m. in the city. The stock has fallen 20 percent this year, compared with a 2.1 percent decline in Singapore’s benchmark Straits Times Index.
The Neo is an updated version of Airbus’s most popular single-aisle A320. It comes with two choices of more fuel-efficient engines, and the first Neos are set to enter service late next year.
While the Asia-Pacific region remains the most promising for travel growth, with a third of Airbus and Boeing Co. orders, a five-year jet-buying frenzy may give way to a more sober approach as carriers adjust to the challenges of intense competition and inadequate infrastructure.
Tiger Air will see five aircraft return to its fleet after selling its entire stake in a Philippine operator earlier this year, according to Brendan Sobie, a Singapore-based analyst at the Capa Centre for Aviation.
Tony Fernandes, the chief executive officer of Asia’s biggest budget carrier AirAsia Group, said last month he’s ready to take a “back seat,” deferring seven deliveries this year and 12 next year.
Qantas Airways Ltd. said last month that its Singapore-based low-cost arm Jetstar Asia had “suspended” growth. While major opportunities remain in the region, current market circumstances have forced a halt, the Australian carrier said.
The moves by Tiger Air and AirAsia are expected to help reduce fleet growth in Southeast Asia (RCSEASS) to about 16 percent this year from an earlier estimate of a little more than 20 percent, Sobie said.
Discount carriers account for 25 percent of total seats in Asia, versus 2 percent a decade ago, according to Airbus. Some 10 new airlines may join the 50 budget carriers already operating across the region, according to Capa.
Toulouse, France-based Airbus, which delivered a record 626 planes last year, will step up production of its single-aisle aircraft to 46 a month in 2016 from 42 now as airlines seek more fuel-efficient models.
Airbus’s orders last year were dominated by the A320, with 1,253 contracts that included 876 of the A320neo. The new aircraft has more than 2,600 orders from 50 customers, its website showed. It is competing against Boeing’s 737 Max, which has more than 1,700 orders and first delivery expected in 2017, according to its website.
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