Tiger Airways shares slide to record low on Australia grounding: Update

Australia’s grounding of Tiger Airways (TAHL.SI) on safety grounds sent shares of the Singapore budget airline tumbling as much as 16% to a record low on Monday and boosted those of its bigger rivals down under, which hope to steal market share and end a price war.

Shares in Australia’s two biggest airlines, Qantas Airways (QAN.AX) and Virgin Australia (VBA.AX), both climbed to one-month highs after the Civil Aviation Safety Authority grounded Tiger’s local operations at the weekend for at least a week, right at the start of Australia’s school-holiday season.

 

The move, the first time a carrier’s entire fleet has been grounded in Australia, comes after the regulator issued a “show cause” notice to Tiger Airways Australia in March and later imposed a number of conditions on the carrier.

 

The grounding triggered a stock ratings upgrade for Virgin to ’outperform’ from ’neutral’ by Macquarie Research as it expected Virgin to gain the most from Tiger’s troubles, which is expected to leave around 40,000 passengers stranded over the week.

 

Macquarie said the regulator’s concerns raised the prospect of an extended grounding.

 

Tiger Airways on Sunday put the cost of the grounding of its 10 Airbus (EAD.PA) A320 aircraft in Australia at about US$1.6 million ($1.96 million) a week.

 

In Singapore, Phillip Securities cut Tiger Airways to ’trading sell’ from ’hold’ and lowered its target price to $1.07 from $1.60.

 

Tiger Airways shares erased some of its losses and traded 8% down at $1.085. Virgin climbed 7% and Qantas rose 5%.

 

Singapore Airlines (SIAL.SI) controls about a third of the budget carrier but is not involved in its operation. Singapore state investor Temasek (TEM.UL) owns about 8% of the carrier.  

MEETING IN AFTERNOON

 

Tiger Airways officials are scheduled to meet regulators this afternoon.

 

“We will be having the first formal meet this afternoon. This is the start of the process to investigate recent incidents and broader safety issues,” a spokesman for the Civil Aviation and Safety Authority said.

 

Tiger’s grounding would result in an immediate loss of 5% of domestic capacity, with a larger share in busy routes such as Sydney-Melbourne, according to Macquarie. It also temporarily removed a major price discounter from the market, the research firm said.

 

Separately, Australian authorities said they were investigating an incident involving a Tiger Airways A320 aircraft that was reported to have descended below the published minimum altitude while approaching Avalon Airport, near Melbourne on June 30.

 

The suspension coincides with the start of school holidays in several states and there were angry scenes at some airports where passengers complained they had not been informed about the grounding.

 

Tiger’s affected passengers will be offered a full refund or deferred credit for any flights this week, the company said in a statement on its website and added it continues to cooperate fully with the industry regulator.