ANALYSIS: Tigerair Mandala's final roar

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Tigerair’s decision to cut its losses at Tigerair Mandala was the correct one, as the struggling unit categorically failed to gain any traction in Indonesia’s brutally competitive market.

A cursory look through press clippings on Tigerair’s Indonesian foray provides sobering reading for the bosses of small airlines operating in big competitive markets.

When Tigerair (then called Tiger Airways) completed its purchase of a 33% stake in Mandala Airlines in early 2012, the move was seen as a bold entry into one of the world’s most promising markets.

Still, there was foreshadowing of doom. Mandala was no star by any stretch of the imagination, and had been grounded since January 2011 owing to financial weakness. The Tiger stake helped get Mandala up and running again in April 2012, but the going was never going to be easy.

One major challenge for the carrier was the lack of quality slots at Jakarta’s notoriously congested Soekarno-Hatta airport. A lack of good slots effectively forced Mandala into the uncomfortable position of avoiding its hub for most of the day, leaving it out of the peak periods.

In December 2012, Mandala commercial director Brata Rafly told Flightglobal that slot congestion at Soekarno-Hatta forced it to operate flights from Jakarta early in the morning, then flying to onward destinations before returning in the evening.

At various times the carrier considered alterative hubs, namely Surabaya, but that plan never came to fruition. It also considered operating from Jakarta’s secondary airport, Halim Perdanakusuma, but dropped this idea because it did not want to split its Jakarta operations between two airports.

In addition, FlightMaps Analytics shows Tigerair Mandala operated on some of the most fiercely competitive routes from Jakarta, such as Singapore, Kuala Lumpur, Bangkok, Yogyakarta, and Bali.

Tigerair Mandala's route network, May 2014

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FlightMaps Analytics

It’s two thickest routes in May 2014 were Jakarta-Singapore and Singapore-Bali. Among the eight carriers on the Jakarta-Singapore route, Tigerair Mandala ranked seventh in terms of outbound traffic for the month, providing 17,000 seats for a 6.5% share of overall capacity.

Singapore-based Tigerair was fifth on the route with 20,000 seats, or 7.6%, but the combined total of the two Tigerairs came to just 14.1%. This pipped Indonesia AirAsia (12.7%) but put it behind Garuda (14.8%), Lion Air (18.4%), and Singapore Airlines (29.8%).

Conditions on Singapore-Bali were somewhat better, but here Tigerair Mandala was a distant third to SIA and Indonesia Air Asia on the route, providing 11,000 seats in May for a 9.9% share of the overall market. Tigerair, for its part, provided just 4.3% of capacity on Singapore-Bali.

This lack of scale on key routes undoubtedly restricted Tigerair’s ability to have any meaningful pricing power, thus pressuring yields.

Capacity on Jakarta-Singapore, May 2014

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FlightMaps Analytics

Despite all this, airline leadership at Tigerair’s Changi Business Park office in Singapore always felt they could turn the unit around despite the flood or red ink from Tigerair Mandala.

In January 2013, Tigerair Group chief executive Koay Peng Yen stated that the carrier’s focus was to return its Philippine and Indonesian units to profitability “in the shortest time possible.” He added that “at this stage, however, we won’t comment on how long it will take.”

“How long” was to become “never.”

Although Tigerair was able to exit the Philippines investment in early 2014 at a net loss probably in the region of $13.5 million, it failed to turn around Tigerair Mandala.

Events seem to come to a head in May 2014, when Tigerair announced a FY2014 net loss of S$223 million for the 12 months ended on 31 March, compared with a net loss of S$45.4 million a year earlier. This included a fourth quarter exceptional charges of $21.5 million related to its interest in Tigerair Australia and Tigerair Mandala.

Within days, Koay was replaced as chief executive by SIA veteran Lee Lik Hsin. Clearly, Tigerair’s biggest shareholder had lost patience. Just six weeks after Lee’s accession to the top job, Tigerair announced that Tigerair Mandala will stop flying on 1 July – an ignominious defeat, but a brave decision.