Every 1ppt improvement leads to about $30m in operating profit.
According to UOB Kay Hian, SIA’s pax load factor rose 2ppt year-on-year (yoy) in Jan-Feb 17 whilst cargo loads also improved.
“This holds scope for a strong 4QFY17 and potential upward earnings revision, especially if the improvement in loads continues into March. In addition, we believe the odds of pax yields declining substantially from current levels are low,” it said.
Here’s more from UOB Kay Hian:
Strong load factors hold scope for upward earnings revisions, especially if the trend of improving loads continues into March. We note that there was broad-based improvement in pax loads across all regions except Southwest Pacific in January-February 17.
The region accounts for 22% of Singapore Airlines’ (SIA) seat capacity in km-terms and part of the decline in loads could be due to directional imbalance between inbound and outbound travel. The latter is typically stronger.
Still, the 2ppt yoy improvement holds scope for a strong 4Q. Every 1ppt point improvement in loads factors above breakeven levels leads to about S$30m in operating profit. Breakeven load factor in 3QFY17 was 77.9%.
Strong load factors on long-haul routes could lead to yield improvement. The strong load factors for Americas and Europe during the period could suggest higher premium traffic. This, in turn, could potentially lead to stronger premium yields.
In February, loads to Europe rose 5ppt yoy. Prior to that, SIA’s loads to Europe had declined throughout FY17 except for December.
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