• Encouraging passenger traffic growth
• Cargo loads continue its decline
• Trade spat not helping

Healthy PLF Across All Passenger Airlines

Singapore Airlines’ (SIA) May 18 operating results saw passenger traffic (revenue passenger kilometres or RPK) growth outpace passenger capacity (available seat kilometres or ASK) growth across all its passenger airlines.

As a result, overall passenger load factor (PLF) for May 18 rose 2.6ppt YoY to 79.6% as passenger traffic grew 9.6% while capacity increased at a slower pace of 6.1%. PLF at the parent airline improved for all route regions except Europe during the early summer season, by 2.1ppt YoY to 78.7%. SilkAir’s PLF increased 3.2ppt YoY to 73.5% as strong demand growth outstripped capacity injections across East Asia, Australia and West Asia.

For Scoot, demand outpaced changes in capacity across all route regions, resulting in a 3.9% YoY growth in PLF to 85.3%. SIA Group airlines’ PLF saw healthy growth trend over the period Jan 18 to May 18, registering growth as much as 3.2ppt in Mar 18 while the worst being Jan 18 (no YoY change).

Disappointing Cargo Statistics From Mar 18 to May 18

Not all operating statistics came in rosy for the SIA Group. SIA Cargo posted negative growth in Cargo Load Factor (CLF) for May 18, as demand (freight-tonne-kilometres or FTK) did not keep pace with capacity changes across all route regions. Capacity grew 2.7% YoY but cargo traffic fell 3.3% in May 18.

Recall that SIA Cargo recorded solid growth in operating profit for FY18 on the back of strong air cargo demand as well higher cargo yield. However, while Jan 18 and Feb 18 continued to register positive YoY growth in CLF, SIA Cargo’s CLF YoY decline started in Mar 18 (-2.8ppt) and accelerated in Apr 18 (-3.0ppt) as well as in May 18 (-3.9ppt). Hence, we expect the strong performance seen in FY18 unlikely to repeat in FY19, assuming the downward trend for SIA Cargo demand persists into the rest of FY19.

In addition, the on-going trade spat between U.S., China and European countries will not help if it results in lower global trade volume on imposition of higher tariffs.

Unchanged FV of S$11.30

Nonetheless, given the fluid macro conditions and SIA’s mixed bag of statistics, we keep our forecasts unchanged for now. Hence, we maintain our FV estimate of S$11.30 on SIA.

Source: OCBC Research - 22 Jun 2018