Tiger Airways shares slump on Australian fleet grounding: Update 2

Tiger Airways Holdings fell by a record in Singapore trading as Australia’s air safety regulator said it may keep the carrier grounded beyond this week because of safety concerns.

Tiger dropped as much as 16%, the most since the shares were listed in January 2010, and traded down 12% at $1.05 as of 2:12 p.m. in the city.

Australia’s Civil Aviation Safety Authority, which grounded the Singapore-based airline’s 10 Australian jets on July 1, will decide whether to seek an extension beyond July 9 after meeting with Tiger management, Peter Gibson, a spokesman for the safety agency, said in a telephone interview yesterday.

 

Qantas Airways and Virgin Blue Holdings, Australia’s biggest airlines, gained on speculation the grounding may enable them to raise fares. Tiger Chief Executive Officer Tony Davis is leading efforts to get the carrier’s jets back in the air after the bureau halted flights citing a “serious and imminent risk to air safety.”

 

“We continue to question the longevity of Tiger in Australia,” Anthony Moulder, an analyst at Credit Suisse Group AG in Sydney, said in a note to clients today. “Tiger’s pricing has been disruptive to the wider leisure market, and therefore we expect a less disruptive pricing environment is positive for all competitors.”

 

Qantas rose 6.5% to A$1.97 at the 4:10 p.m. close of Sydney trading, paring this year’s decline to 22%. Virgin Blue, the holding company for Virgin Australia, rose 11% to 31.5 Australian cents.

SINGAPORE AIRLINES

Tiger’s rating was cut by at least four brokers, with Credit Suisse and DMG & Partners Securities recommending investors sell their stock.

 

Tiger Airways is 33% owned by Singapore Airlines , according to data compiled by Bloomberg. The suspension of Australian services is costing the carrier $2 million a week, it said in an e-mailed statement today.

 

“Tiger Airways’ management team is today commencing an extensive series of meetings with the industry safety regulator and will continue to work on a constructive basis,” Tiger said in the statement. “Our goal is to resume our services as quickly as possible whilst restoring the confidence of both CASA and the Australian public at large.”

 

Tiger Airways Singapore services are not affected and continue to operate normally.

 

The Australian safety agency has been monitoring the airline this year and earlier imposed conditions, including improving pilot proficiency and maintenance control, the Australian air safety regulator said in a separate statement. To extend Tiger’s grounding, the agency would need to make an application by July 8, said Gibson, its spokesman.

 

“There’s a process that we’re working our way through,” Gibson said.

 

ASH CLOUD

The grounding affects 35,000 passengers and comes as much of the country starts school holidays, according to Transport Minister Anthony Albanese. It is a further disruption for Australian travelers who have grappled with flight cancellations since the Puyehue-Cordon Caulle volcanic complex in Southern Chile erupted June 4, sending an ash cloud billowing around the globe.

 

Qantas, its budget unit Jetstar, and Virgin are helping Tiger passengers affected by the grounding.

 

“The safety of the travelling public must come first,” Albanese said in a statement. “CASA has not taken this action lightly but formed the view that there was a serious and imminent risk to passengers.”

 

Tiger began domestic Australian flights in November 2007 and has kept costs and fares down since entering the market through steps including charging extra for food, airport check- in and reserved seating.

 

With a fleet of 10 Airbus SAS A320 planes in Australia, it’s the smallest of three airline groups flying domestic routes. Virgin Australia operates 86 aircraft while Qantas, Australia’s largest airline, and its budget carrier Jetstar had 252 planes and about 5,600 domestic flights a week as of September, their websites show.