Singapore’s Tiger Airways sells unprofitable Philippine unit to Cebu Air
MANILA/SINGAPORE: Singapore’s Tigerair is selling its Philippine business to Cebu Pacific, the archipelago’s biggest airline, leaving just three main players in a market flush with planes but thin on passengers.
Tigerair, which has lost millions of dollars since buying into the budget carrier about 18 months ago, is turning its attention to partnerships to build scale. Cebu Pacific is betting on longer-term growth to propel traveller numbers beyond seats.
Tiger Airways Holdings Ltd, 40 per cent-owned by Singapore Airlines Ltd, said on Wednesday it will sell its 40 per cent stake in Tigerair Philippines to Cebu Air Inc , operator of Cebu Pacific.
That will leave Cebu Air, a unit of conglomerate JG Summit Holdings Inc, with one less competitor. It separately said it will buy the stake plus the remaining 60 per cent of the budget carrier from Tigerair’s local partners for $15 million. Tigerair estimates proceeds of $7 million.
This would be the second instance of consolidation in less than a year after the Philippine unit of Malaysia’s AirAsia Bhd bought 49 per cent of Zest Airways in March. AirAsia increased its spending on Zest in September to relieve financial stress at the small airline.
The number of available seats on Philippine planes will soon outnumber passengers, prompting airlines to cut prices to gain market share.
“I think it (pressure on fares) is a reflection of the fierce competition within the Philippines,” Lance Gokongwei, chief executive and president of Cebu Pacific, told reporters in a conference call.
“Our feeling is that the Philippine economy continues to grow at a pretty strong clip and if we have overcapacity at the moment, over time the growth of the market will more than compensate for this.”
Tigerair Philippines has been losing money since Tigerair completed the purchase of its 40 per cent stake in 2012. As of Sept. 30, Tigerair had written off its cumulative share of losses and impairments of S$84 million ($66 million) in its Philippines operations since August 2012.
Shares of Tigerair fell nearly a per cent on Wednesday in a firm market. Cebu Pacific rose 3.5 per cent in a broader market which rose 0.7 per cent.
Tigerair, after selling the stake, will collaborate both commercially and operationally with Cebu Pacific on international and domestic routes, thereby creating the biggest network of flights out of the country.
“Indeed, scale of operations is important and that includes both real and virtual scale as well. We believe that getting into partnerships and alliances will give us virtual scale that will yield similar benefits as well,” said Koay Peng Yen, chief executive of Tigerair.