Losses at Virgin Australia's budget airlineTigerair Australia have risen to “alarming levels” of more than $2 million a week amid heated competition in the domestic aviation market, says CIMB analyst Raymond Yap.
Virgin’s joint venture partner, Singapore-based Tigerair, on Wednesday released its accounts for the quarter ended June 30. Tigerair Australia was no longer consolidated into the accounts and instead treated as an associate because the Singapore-based company’s stake fell to 40 per cent. That means disclosure on the Australian arm has been more opaque.
Virgin owns 60 per cent of Tigerair Australia and will release its half year results next month. However, based on the Singapore accounts, Tigerair Australia’s operating losses reached $S33.8 million ($29 million), or around $2.2 million a week in the second quarter of the calendar year on a 100 per cent basis.
The budget carrier only has 13 planes, meaning each one is losing around $171,000 a week.
In the first half, Tigerair Australia’s operating losses nearly doubled to $48 million, from $27.6 million last year, when translated from Singapore dollars.
Mr Yap said he was concerned the outlook for the Australian low-cost carrier, which competes against Qantas Airways’s Jetstar arm, could worsen in the current financial year.
“This is on the back of heavy competition from Qantas, Jetstar Asia and Virgin Australia, which has created continuing yield pressure,” he said.
“With the exception of Melbourne-Sydney (Tigerair Australia’s largest route) and Melbourne-Perth (Tigerair Australia’s sixth-largest route), all of its other routes are expected to see industry-wide capacity expansion in the current quarter, which will exacerbate the present overcapacity.”
Tigerair Australia’s load factors, or percentage of seats filled, have been falling in recent months after it added two new planes to its fleet.
In May, the load factor plunged 14.9 percentage points to 70.3 per cent versus the same month a year earlier, although Virgin in May said early indications were that loads had improved “materially” in the month of June.
Virgin boss John Borghetti is the chairman of Tigerair Australia’s board and the Virgin network management team has been working with the low-cost carrier to optimise its network.
In May, Tigerair said it would abandon flights between Sydney and Melbourne to Alice Springs and between Melbourne and the Sunshine Coast due to low consumer demand, with the changes taking effect on July 22.
Instead, it will boost its frequency on the Sydney-Gold Coast route to four daily from two, while Virgin will lower its frequencies on that route.