The question that leaps out of the eight months late financial accounts of Singapore Airlines-controlled Tiger Airways is whether the low-fare carrier’s accounts imply that the costs of its current loss generating operations are being covered by future sales, and show that it only had cash reserves to pay for its operations for 11 days at its balance date of March 31 this year.

Yet this is an airline that has confirmed it might seek $US500 million ($A549 million) in an equity raising in an IPO in coming months.

The accounts also show that despite growth in capacity and routes over the previous 12 months, Tiger’s operations in Australia and throughout South-East Asia have seen a shrinkage of the pool of cash from forward sales.

At March 31 this year “sales in advance of carriage” were in $SIN a total of $56 million compared to $63.3 million a year earlier.

In the same period operating costs rose from $296 million to $426 million while cash reserves fell from $33.4 million to $13.2 million.

With daily operating costs averaging $1.167 million a day, that leaves just over 11 days cash cover for operations, a wafer-thin margin in a business subject to shocks such as SARS, the GFC or  the withholding by credit-card companies of sales revenue, a factor that recently led to the collapse of struggling low-cost carrier Frontier in the US.

The worrying element in Tiger is that today’s costs are covered by tomorrow’s paid passengers  and that everything rocks on, despite the absence of real profits, as long as forward sales grow faster than those bills that must be paid.

For a major low-cost brand, which posted consolidated losses of $50.8 million in its full year to the end of last March, Tiger is a standout for failing to become consistently profitable in its own right within two years. It has been operating for five years, well past the time this business model either produces dividends or ends in collapse.

Enter the need for the $US500 million initial public offering.

As the accounts show (below) Tiger Airways has committed itself to huge sums of money for future jets.

lease commitments

Qantas can smell blood. The announcement by its Jetstar brand this morning of significant expansion of its fleet of A320s means that it can snatch sales from the Tiger at will throughout Australia or Asia, leveraging the brand power of  itself and Qantas, which is something Singapore Airlines is so far unwilling to do with its competing low-cost franchise.

Longer-term observers of Singapore Airlines failures to successfully invest in airlines in India, China and Thailand, and in its disastrous eyes wide plunge into Air New Zealand/Ansett  might wonder if any of those lessons in how not to do business outside of Singapore have been learned.

Peter Fray

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