Tuesday, January 31, 2012

Implication of Singapore Tiger Airway's Q3 results.

Tiger Airways Singapore posted a net loss of S$17.4mil in Q3 FY 2011, as compared to a net profit of S$22.5mil in same period last year.

The net loss for the Group was largely attributable to: losses generated from Tiger Airways Australia as a result of the CASA suspension, under-utilisation of aircraft fleets (due to 38.8% increase in the average size of the operating aircraft fleet and significant increase in fuel costs. Fuel costs (net of gain/losses on fuel hedging) has increased from S$54.5mil in Q3 FY 2010 to S$75.7mil in Q3 FY 2011.
Tiger Airways made the following comments in the outlook statement of its announcement:

“The Group expects to report a significant net loss for the financial year largely as a result of the CASA suspension in Australia, the under-utilisation of the Group’s aircraft fleet and exposure to high and volatile jet fuel prices.”
Implication of Tiger Airways’ results.

Tiger Airways’ results are alarming to audit clients involved in airlines, shipping, transportation, and logistics industries. This is because:

- global economy is experiencing slow down of business activities, which may likely to result in under-utilisation of capacities (e.g. under utilisation of vessels, fleets, trucks). Your audit clients may experience significant over capacities in current period of review;
- fuel costs have increased significantly during the period of review. Your audit client may record substantial fuel costs in current period.

The above factors, individually or in combined, may result in the audit clients record substantial operating losses. In addition, the above factors may trigger potential impairment on property, plant & equipments, going concern issue, capabilities of repaying creditors / borrowings.

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