Harvard Case - Tiger Airways: Buyout Offer from Singapore International Airlines
"Tiger Airways: Buyout Offer from Singapore International Airlines" Harvard business case study is written by Ruth S.K. Tan, Zsuzsa R. Huszar, Weina Zhang. It deals with the challenges in the field of Finance. The case study is 12 page(s) long and it was first published on : Dec 19, 2016
At Fern Fort University, we recommend that Tiger Airways accept the buyout offer from Singapore Airlines (SIA). This strategic move will allow Tiger Airways to leverage SIA's established infrastructure, brand recognition, and financial resources, ultimately leading to a more robust and sustainable future for the airline.
2. Background
This case study focuses on Tiger Airways, a low-cost carrier based in Singapore, facing a buyout offer from SIA, the country's flag carrier. Tiger Airways, despite its initial success, was struggling with profitability due to intense competition in the low-cost carrier market and operational inefficiencies. SIA, on the other hand, recognized the potential of expanding its market share in the budget travel segment and saw Tiger Airways as a valuable asset.
The main protagonists in this case are:
- Tiger Airways: A struggling low-cost carrier seeking a way to improve its financial performance and secure its future.
- Singapore Airlines: A well-established airline looking to expand its market share and diversify its offerings.
- Tiger Airways management: Facing a difficult decision with significant implications for the airline's future.
- SIA management: Seeking to leverage the buyout to strengthen their position in the budget travel market.
3. Analysis of the Case Study
This case can be analyzed using the Porter's Five Forces Framework to understand the competitive landscape and the strategic implications of the buyout offer.
- Threat of New Entrants: The low-cost carrier market is highly competitive with low barriers to entry, making it susceptible to new entrants. The buyout would help Tiger Airways mitigate this threat by leveraging SIA's brand and resources.
- Bargaining Power of Buyers: Passengers in the budget travel segment are price-sensitive, giving them significant bargaining power. The buyout could help Tiger Airways offer more competitive pricing and improve customer service, thereby reducing buyer power.
- Bargaining Power of Suppliers: The airline industry is dependent on suppliers like aircraft manufacturers and fuel providers. The buyout would give Tiger Airways access to SIA's established relationships and potentially better negotiating power with suppliers.
- Threat of Substitute Products: The budget travel segment faces competition from other modes of transportation like buses and trains. The buyout would allow Tiger Airways to offer a more comprehensive range of services, reducing the threat of substitutes.
- Competitive Rivalry: The low-cost carrier market is highly competitive, with several players vying for market share. The buyout would strengthen Tiger Airways' position by leveraging SIA's resources and brand recognition, making it a more formidable competitor.
Furthermore, a Financial Analysis of Tiger Airways reveals the following:
- Profitability: Tiger Airways was struggling with profitability, with declining margins and losses in several years.
- Cash Flow: The airline was facing cash flow issues, with high operating costs and limited access to financing.
- Debt Management: Tiger Airways had a high level of debt, increasing its financial risk and limiting its growth potential.
The buyout offer from SIA presented a significant opportunity for Tiger Airways to address these challenges and secure its long-term viability.
4. Recommendations
Tiger Airways should accept the buyout offer from SIA. This decision should be based on the following key considerations:
- Strategic Alignment: The buyout aligns with SIA's growth strategy and provides Tiger Airways with access to SIA's resources, brand recognition, and expertise.
- Financial Stability: The buyout would provide Tiger Airways with much-needed financial stability, enabling it to invest in growth and improve its operational efficiency.
- Market Access: SIA's global network and brand recognition would open new markets for Tiger Airways, expanding its customer base and revenue streams.
- Operational Synergies: The buyout would create opportunities for operational synergies, such as shared infrastructure, procurement, and marketing, leading to cost savings and improved efficiency.
5. Basis of Recommendations
This recommendation considers the following factors:
- Core Competencies and Consistency with Mission: The buyout aligns with SIA's core competencies in aviation and complements Tiger Airways' mission to provide affordable air travel.
- External Customers and Internal Clients: The buyout would benefit both external customers, who would gain access to a wider range of services and destinations, and internal clients, who would benefit from improved job security and career opportunities.
- Competitors: The buyout would strengthen Tiger Airways' position against its competitors by leveraging SIA's resources and expertise.
- Attractiveness ' Quantitative Measures: The buyout would likely result in a positive net present value (NPV) and a high return on investment (ROI) for SIA, making it a financially attractive proposition.
6. Conclusion
Accepting the buyout offer from SIA is the most strategic and financially sound decision for Tiger Airways. It provides a path to long-term sustainability, growth, and profitability, while mitigating the risks associated with operating independently in a highly competitive market.
7. Discussion
Other alternatives considered included:
- Continuing to operate independently: This option carried significant risks, given Tiger Airways' financial struggles and the competitive nature of the market.
- Seeking alternative investors: This option would have been challenging given the airline's financial performance and the limited availability of investors in the aviation sector.
The key risks associated with accepting the buyout include:
- Loss of autonomy: Tiger Airways would lose some autonomy and decision-making power as part of SIA.
- Integration challenges: Integrating Tiger Airways into SIA's operations could present challenges and require careful planning and execution.
The key assumptions underlying this recommendation include:
- SIA's commitment to the low-cost carrier market: SIA's commitment to the budget travel segment is crucial for the success of the buyout.
- Effective integration of Tiger Airways into SIA's operations: The success of the buyout depends on the ability to seamlessly integrate Tiger Airways into SIA's existing operations.
8. Next Steps
The following steps should be taken to implement the buyout:
- Negotiate the terms of the buyout agreement: This includes determining the purchase price, the integration timeline, and the future role of Tiger Airways management.
- Develop an integration plan: This plan should outline the steps required to integrate Tiger Airways into SIA's operations, including branding, marketing, and operational processes.
- Communicate the buyout to stakeholders: This includes informing employees, customers, and investors about the decision and the expected impact.
- Implement the integration plan: This involves executing the integration plan and addressing any challenges that arise.
The successful implementation of the buyout will require careful planning, effective communication, and a commitment from both SIA and Tiger Airways to ensure a smooth transition and a successful future for the combined entity.
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Case Description
In January of 2016, Singapore International Airlines Group (SIA) announced that it had secured more than 90 per cent stake in Tiger Airways Holdings Limited (Tigerair), and would take Tigerair private. Once the buyout offer closed on February 19, trading in Tigerair's shares would be suspended because the free float had fallen below the minimum 10 per cent threshold. Tigerair had been suffering losses amounting to more than SG$600 million from 2012 to 2015. When SIA initiated the buyout offer, Tigerair's shareholders wanted to use the discounted cash flow model, the discounted dividend model, and relative valuation to determine whether the buyout was a fair deal.
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