Summer holidays perk up passenger numbers. SIA reported encouraging passenger numbers for June 2012, with RPK (revenue passenger km) growing by 12% y-o-y and 8.1% m-o-m, outpacing its capacity growth of 6.3% y-o-y and -1.2% m-o-m. The higher demand bodes well for SIA's passenger load factor, which improved by 4.2% ppts y-o-y and 7.2% ppts m-o-m to 83% in June. The growth was driven by the peak summer travel across the board, with Europe and South West Pacific recording the strongest load factor improvement ' at more than 6ppts y-o-y and 9ppts m-o-m. Silk Air's numbers remained encouraging although the capacity expansion had somewhat lowered its load factor by 0.4ppts to 78.7%. SIA continued to emphasize that the pick-up in demand was also the result of heightened promotions, which suggests that passenger yields will remain pressured in light of the weak global macro outlook and intensifying competition.

Cargo dragged down by East Asia. In the cargo segment, freight tonnage carried improved by 0.3% y-o-y and 2.3% m-o-m, driven by higher demand from West Asia, Europe and the Americas. However, in terms of km tonnage, the numbers deteriorated marginally by 0.5% y-o-y due to slower shipments from East Asia and Australia. As this failed to outpace the airline's capacity growth, its overall load factor declined by 0.9ppts. We note that the higher capacity numbers could have been distorted by the lower base last year as a result of Japan's earthquake, which had led to load factor from East Asia falling sharply by 7ppts y-o-y to 51%. Looking at the m-o-m sequential improvement of 3.7% in tonnage km, we think that the cargo segment is likely to make only mild progress from here.

Earnings preview. SIA's 1QFY12 earnings stood at SGD230m on the back of SGD3.5bn in revenue. The carrier will be reporting its earnings on 26 July. We expect its core earnings to be flattish, or only marginally better at SGD210m-SGD230m on the back of SGD3.85bn of revenue, considering that jet fuel price had averaged lower by 7.6%-6.6% q-o-q and y-o-y in 1QFY12. The lower cost was, however, offset by the carrier's flat yields and cargo losses.