SINGAPORE, Nov 6 — Singapore Airlines Ltd, Southeast Asia’s biggest carrier, offered to pay S$453 million (RM1.386 million) for the shares it doesn’t own in the loss making low-cost unit it floated less than six years ago.

Singapore Air, which owns 55.8 per cent of Tiger Airways Holdings Ltd., is offering to pay S$0.41 in cash for each share, the carriers said in a joint statement to the city-state’s stock exchange today. 

While that’s a 32 per cent premium to yesterday’s close, it’s well below the S$1.50 per share investors paid in Tiger Air’s initial public offering in January 2010.

Tiger Air shareholders also will have the option of buying Singapore Airlines shares at S$11.1043 each, a 0.4 per cent discount to yesterday’s close.

Singapore Air plans to delist Tiger Air.

Rising incomes in Asia are enabling more people to fly for the first time, sparking rapid expansion of budget carriers.

While the Asia-Pacific region remains the most promising for travel growth, with a third of Airbus Group NV and Boeing Co orders, the jet-buying frenzy of the last five years may give way to a more sober approach as carriers adjust to the challenges of mounting competition and inadequate infrastructure. Tiger has posted losses in five of the past six quarters.

“This a tactically well-timed move for Singapore Air,” Alan Richardson, a Hong Kong-based money manager at Samsung Asset Management Ltd, said in an e-mail.

“Tiger Air has been restructuring operations by cancelling loss-making routes. By doing, so earnings are at an inflection point.”

Singapore Air injected funds into Tiger Air last year by increasing its stake to help the budget carrier.

The low-cost carrier has been reducing its capacity, cutting routes and ending partnerships in Indonesia and the Philippines to improve its financials. 

Singapore Air shares have fallen 3.9 per cent this year, while Tiger Air climbed 17 per cent. The Singapore benchmark Straits Times Index lost 10 per cent. Both stocks were halted from trading Friday for the announcement.

Singapore Air yestersday posted profit that more than doubled after adding Tiger Air’s earnings into its own account in the July-September period. Net income for the Singapore Airlines group jumped to S$213.6 million in the quarter ended September, from S$90.9 million a year earlier, it said in a statement yesterday.

Tiger Air has been making efforts to return to profit. The company reported a loss of S$12.8 million in the three months ended September, compared with a S$182.4 million loss a year earlier. Yields, or money earned from carrying travelers each kilometer, rose 8.2 per cent to 6.6 cents, and it filled 84.12 per cent of its seats in the quarter.

“Our investment in Tiger provides the SIA Group an additional engine of growth in an expanding segment of the air travel market,” Singapore Airlines Chief Executive Officer Goh Choon Phong said in a letter to employees. “This ultimately strengthens the SIA Group as it enables us to tap into market segments that would not otherwise be available to us.”

The restructuring is symptomatic of the challenges budget airlines face in South and Southeast Asia, where most carriers are unable to take advantage of rising traffic because of low fares and capital expenditures to buy new aircraft. 

Economic growth in the region has enabled more people to fly for the first time, prompting budget carriers to start and order hundreds of aircraft. Singapore Air also has another budget airline, Scoot Pte. Low-fare airlines account for more than 50 per cent of seats sold in the city.

Singapore Air has been enhancing cooperation between its two budget units.

Members of Singapore Air’s mileage programme, KrisFlyer, can earn miles when they fly on Scoot and Tiger Air.

The two budget carriers are also offering passengers seats on each others planes to increase efficiency. Singapore Air offers flights to regional destinations through its SilkAir subsidiary.

“It makes complete sense for Tiger Air to be a 100 per cent owned subsidiary of Singapore Airlines,” said Timothy Ross, an analyst at a Singapore-based analyst at Credit Suisse Group AG.

“I can see a number of unexhausted areas of synergies.” — Bloomberg