UPDATE 3-Tiger Airways sells unprofitable Philippine unit to Cebu Air

Wed Jan 8, 2014 3:53am EST

Related Topics

* Tiger Airways sells its 40 pct Tigerair Philippines stake to Cebu Air

* Cebu Air to buy remaining 60 pct from Tiger Airways' partners

* Deal is second act of consolidation in the Philippines in a year (Adds comments from company officials, market context)

By Rosemarie Francisco and Anshuman Daga

MANILA/SINGAPORE, Jan 8 (Reuters) - 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 percent-owned by Singapore Airlines Ltd, said on Wednesday it will sell its 40 percent 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 percent 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 percent 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 percent 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 percent on Wednesday in a firm market. Cebu Pacific rose 3.5 percent in a broader market which rose 0.7 percent.

MORE PARTNERSHIPS

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.

"This new partnership with Cebu Pacific is an expansion of that strategic thinking that we have."

Cebu Pacific said the alliance will enable it to fly to high-growth markets such as Australia and India, and jointly operate routes between Singapore and the Philippines.

"At this point, they (Tigerair) do not have flexibility or the firepower to increase the number of planes, so they are not looking at increasing connecting cities through increased frequencies on Tigerair," said Sagar Ashok, a Kuala Lumpur-based aerospace consultant at Frost & Sullivan.

"So, they would be looking at these kinds of arrangements where they fly in with other carriers."

Last month, Tigerair turned its attention to budget air travel in North Asia, saying it will hold 10 percent of Tigerair Taiwan, a new joint venture with China Airlines Ltd.

Tigerair also formed an alliance with Indian budget airline SpiceJet Ltd and partnered with Scoot, a medium and long-haul low-cost carrier owned by Singapore Airlines.

"The aviation market in the Philippines is overcrowded and largely unprofitable, except for market-leader Cebu. The deal will allow Cebu to solidify its market position," said SB Equities analyst Raymond Yap in a note.

Cebu Pacific controlled about 51 percent of the domestic market in July-September, followed by PAL Holdings Inc's Philippines Airlines group with just over 35 percent, the Centre for Aviation said in a report, citing government data. AirAsia-Zest Air held 9 percent while Tigerair Philippines held nearly 5 percent.

Tigerair Philippines averages 118 flights weekly with five aircraft to 11 domestic and international cities. This compares with Cebu Pacific's 2,200 flights, 48 aircraft and 24 overseas and 33 local destinations. ($1 = 1.2717 Singapore dollars) (Additional reporting by Erik dela Cruz; Editing by Christopher Cushing)

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