Tiger Airways Holdings Ltd. (TGR), the unprofitable low-fare carrier part-owned by Singapore Airlines Ltd. (SIA), said its Indonesian venture will stop flying, as the budget airline tries to restructure operations.
Mandala will cease flights from July 1, Tiger Air said in a statement to the Singapore stock exchange yesterday. Mandala wouldn’t be able to sustain its operations and the airline’s key shareholders decided to cease funding, Tiger said.
Tiger Air has been grounding planes and canceling aircraft orders as part of a restructuring after mounting losses led largest shareholder Singapore Air to name a new chief executive officer for the low-fare airline. The efforts are symptomatic of the challenges budget airlines face in Southeast Asia, where competition among half a dozen carriers has pushed fares down.
“This is definitely an example of the very challenging conditions that carriers face in this region,” said Brendan Sobie, a Singapore-based analyst at CAPA Centre for Aviation, “Low-cost carriers are definitely in a vulnerable position.”
Shares of Tiger Air were unchanged at 49 Singapore cents at the close of trading in Singapore today.
Mandala’s financial results reflect the challenges that it is facing in the difficult operating environment, Tiger Air Chief Executive Officer Lee Lik Hsin said in the statement.
While the Asia-Pacific region remains the most promising for travel growth, with a third of Airbus Group NV (AIR) and Boeing Co. (BA) 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.
Economic growth in the region has enabled more people to fly for the first time, prompting budget carriers to start and order hundreds of aircraft. Singapore Air itself has set up two budget airlines - Tiger Air and Scoot Pte. Singapore Air owns 40 percent of Tiger Air and all of Scoot. Low-fare airlines account for more than 50 percent of seats in the city.
Australia’s Qantas Airways Ltd. (QAN) said in February that Singapore-based low-cost arm Jetstar Asia had “suspended” growth. Indonesia’s PT Adam Skyconnection Airlines also ceased operations after running out of funds to keep flying, while Oasis Hong Kong Airlines Ltd., which tried to take on Cathay Pacific Airways Ltd. (293) on long-haul flights, collapsed in 2008 after incurring losses.
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.
Tiger exited the Philippine market earlier this year after increasing its stake in the Indonesia venture last year to 35.8 percent.
“Their strategy of trying to launch operations in several countries -- that strategy faced a lot of challenges because they were too late to the party,” CAPA’s’s Sobie said, “Tiger themselves don’t have the balance sheet to stomach huge losses, they are a very small company.”
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