SIA's RPK for the month of May rose 7.1% y-o-y, overtaking its 3.9% capacity growth (load factor rose 2.2ppts to 75.8%) due to continued promotions as well as the low base following last year's earthquake in Japan. While the passenger numbers were slightly better than we anticipated, its cargo segment, however, fell slightly short of our estimates. We see improvements as easing monetary policies across the globe to boost waning economies buoy confidence. We are also heartened that Scoot, launched this month, chalked up a load factor of 80%, with its aircraft due to be more intensely utilized at more than 14 hours per day vs the average 12 hours. Maintain BUY, at an unchanged FV of SGD12.13, premised on 1x FY13 P/BV.

Passenger better than expected. SIA reported commendable passenger numbers, with a RPK growth of 7.1% y-o-y vs a 3.9% growth in capacity, leading to a 2.2ppts improvement in load factor to 75.8%.  All regions recorded better load factors except West Asia and Africa, with Europe and South West Pacific bouncing back strongly due to the low base after Japan's earthquake last year, as well as continued promotions. With YTD RPK at 8.5% for the first 2 months, we deem the numbers slightly ahead of our forecast as they accounted for 16.5% of our full-year forecast vs 15.7% of last year's full-year RPK. The m-o-m trend was seasonally weaker as RPK shrank 2.1%, but this is no cause for worry. Silk Air continued to report aggressive growth, with RPK climbing 22.7% in line with management's guidance as more aircraft are deployed to boost frequency and new routes are introduced.

Scoot shoots off. Scoot started operation on 4 June, joining the ranks of other long-haul low cost carriers in Asia such as AirAsia and Jetstar. Currently it serves Singapore-Sydney daily. This huge market is not served by LCCs and demand has been encouraging, with load factor hitting 80%. It also serves the Singapore'Gold Coast route (5x weekly), Singapore'Bangkok (daily) and Singapore-Tianjin (4x weekly). CAPA estimates that SIA's fleet will be heavily utilized at 14.45 hrs per day, which is commendable compared to the average 12-hour utilization for a low-cost carrier and just 13.6 hours for Jetstar. As the airline kicked off with only 4 aircraft this year, we do not expect this to cannibalize SIA's traffic. Furthermore, we note that SIA has not reduced fares on its Sydney route despite the entry of Scoot, which suggests that demand for premium travel remains fairly encouraging. We reaffirm Management's view that Scoot will capture its own market share instead of cannibalizing SIA's.