Tiger orders Airbus A320s for US$3.8 billion as travel booms

The order for single-aisle A320neo planes is valued at $3.8 billion (RM12.6 billion) and is for delivery between 2018 and 2025, the airline said in a statement to the Singapore stock exchange today. Manufacturers typically give discounts on list prices. The carrier has the option to increase the order by up to 13 aircraft and also to convert the model to a bigger variant.

As part of the new purchase agreement, Tiger Air canceled existing orders for nine A320s as the new model, powered by Pratt & Whitney engines, will help the company save about S$40 million ($31 million) a year on fuel. An economic boom and a surge in travel demand across Southeast Asia has prompted budget airlines in Indonesia, Malaysia and Vietnam to buy new aircraft, stoking concerns about whether the industry is building more capacity than it needs.

“This deal effectively dissipates some concerns over a potential capacity overhang in the next couple of years,” Tiger Air’s Chief Executive Officer Koay Peng Yen said in the statement.

The planes that Tiger Air canceled were for delivery between 2014 and 2015, according to the statement. The company operates its airline under the brand name Tigerair.

The Neo is an updated version of Airbus’s most popular single-aisle A320. It comes with two choices of more fuel- efficient engines, and the first Neos are set to enter service late next year.

While the Asia-Pacific region remains the most promising for travel growth, with a third of Airbus and Boeing Co. orders, a five-year jet-buying frenzy may give way to a more sober approach as carriers adjust to the challenges of intense competition and inadequate infrastructure.

Tony Fernandes, the chief executive officer of Asia’s biggest budget carrier AirAsia Group, said last month he’s ready to take a “back seat,” deferring seven deliveries this year and 12 next year.

Australia’s Qantas Airways Ltd. said last month that Singapore-based low-cost arm Jetstar Asia had “suspended” growth, adding that while major opportunities remain in the region, current market circumstances had forced a halt.

Discount carriers account for 25 percent of total seats in Asia, versus 2 percent a decade ago, according to Airbus. Some 10 new airlines may join the 50 budget carriers already operating across the region, according to Capa Centre for Aviation.