AVIATION | Krisana Gallezo-Estaura, Singapore

Is Singapore Airlines losing the premium airlines race?

SIA's 3Q results disappoint despite a traditionally seasonal peak.

Singapore Airlines (SIA) reported 3QFY3/13 results that were below market expectations.  MayBank notes that the 9-month EBIT of SGD273.4m only came in at 70% of market's consensus full year forecast despite 3Q being a seasonal peak. Moreover, despite 3QFY3/13 operating profit dropping 17% YoY, PATMI rose 5% due to non-operating items such as surpluses on sale of aircraft and parts and higher net interest income.

Here's what analysts had to say:

Lim Siyi, analyst, OCBC Investment Research

Despite a disappointing set of 3Q13 results – given our more upbeat expectations – SIA has done relatively well with promotional activities proving supportive for the Group in this challenging environment.

However, unless management starts to look for other growth opportunities for the Group, SIA may find itself in an unenviable position with pricing as its only tool to stimulate top-line growth going forward.

Therefore, SIA needs to seek out strategic investments in order to keep pace with its competitors. In recent times, airlines such as the Middle- Eastern carriers have been aggressively seeking collaborations with other airlines via joint ventures/direct investments in a bid to grow their revenue base and expand its reach. On the other hand, SIA recently concluded its unprofitable venture with Virgin Atlantic and was late into the game with its 10% stake in Virgin Australia. With a sizeable war chest, SIA has to turn more active if it wishes to remain relevant at this stage.

  Bernard Chin, analyst, MayBank KimEng

SIA Cargo continued to be a drag on SIA’s operating profit despite its losses narrowing to SGD29m this quarter (from SGD40m YoY). Management also revealed that Scoot load factors have been encouraging (>80%).

However, their guidance on the overall outlook of international air travel continues to be one that is challenging: Passenger and cargo yields are expected to come under pressure while jet fuel continues to be at historical highs.

SIA’s disappointing results provide continued affirmation of our view that airlines, especially full-service carriers, face an immensely challenging competitive environment with no reprieve in sight.

Andrew Lee, analyst, Nomura

SIA parent airline’s yield for 3Q13 (at 11.4 cents) was 6% y-y lower. However, we note that yields have been flat for the past 3 quarters. We view this as mildly positive given 2ppt growth in load factors y-y.

SilkAir continued to generate steady profits (SGD34mn operating profit for 3QFY12, vis-à-vis the parent airline’s SGD87mn). SilkAir’s yield held steady at 14.6 cents, but at the cost of load factors (-3ppt y-y). 

Cargo continues to be the weakest area for the group, with an operating loss of SGD29mn for the quarter. Load factors were steady at ~65%, but yields continue to decline (-3% y-y). We note that SIA has parked one cargo aircraft in December 2012 (12 operating now), which should result in further decline in capacity in 4Q13F.

Management guidance remains cautious, especially in view of the pressure on yields, high oil prices and the strong SGD, which will impact revenues denominated in other currencies. 

Management is also looking at growing capacity to Australia, in line with our view that SIA will try to gain additional share of Singapore-Australia traffic, post the Emirates-Qantas alliance. 

The sale of its 49% stake in Virgin Atlantic (for SGD439mn) is expected to close in 4Q13, resulting in a net gain of SGD205mn, as guided before.

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