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Air cargo, regional travel growth spur SATS’ earnings recovery

The return of Chinese travellers is a positive for SATS’ food catering business.

SATS’ earnings will remain on the recovery track over the next 18 months, propped up by business volume recovery as well as the potential to pass inflationary cost pressure to its customers.

The continued improvement of air cargo volumes and regional air travel are positives for SATS. Its refinancing of Worldwide Flight Services’ (WFS) debts can also lead to additional annualised cost savings of up to S$8m, depending on how much SATS can refinance a bridging loan due June 2024.

Global trade outlook volume as tracked by IATA has shown a good trend of re-acceleration since mid-2023, from a 1.5% growth in August to a 10.8% growth in December 2023.

“According to IATA, global air cargo volume is expected to grow by 4.5% yoy in 2024; this will help SATS’ cargo handling business, in our view,” said UOB Kay Hian analyst Roy Chen, CFA.

The continued recovery of regional air travel, driven by the potential return of Chinese travellers, will benefit SATS’ inflight food catering business.

“Expect regional air travel to continue recovering in 2024, driven by the potential return of Chinese travellers, catalysed by China’s new visa-free arrangements with Singapore, Thailand and Malaysia,” Chen said.

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“In addition, with SATS’ largely stablised workforce, operating leverage should help SATS’ earnings recovery going forward,” he added.

SATS also has the potential to realise a total annual interest savings from refinancing to as high as S$55m.

In June 2023, SATS refinanced Worldwide Flight Services’ (WFS) high cost €1b debts (of 8-9% interest) with a bridging loan of about 4.5%, achieving annual interest savings of about S$40m. 

In January 2024, SATS issued a US$500m note and used interest swaps to refinance part of its outstanding bridging loan, bringing the effective interest further down to 3.5%, leading to additional annual interest savings of S$7m. 

Assuming SATS can refinance the remaining bridging loan (due by Jun 24) at similar rates, SATS may potentially realise additional annual interest cost savings of S$8m, for a total of S$55m added up.

The full impact of the interest savings is expected to kick in from Q2 FY2025 onwards.

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