The aviation sector is only expected to begin recovery by FY2022.
In-flight catering service provider SATS is expected to begin its journey to recovery as the circuit breaker measures lift, and the government’s agreement to allow transit of passengers in Changi beginning 2 June, according to a report by DBS Group Research. However, recovery could take as much as two years, with the aviation sector expected only to start recuperation by FY2022.
“With Singapore coming out of the circuit breaker, we see recovery on the cards. However, we are yet to turn positive since demand for regional aviation will take time to pick up,” they noted later in the report.
A potential catalyst will be a faster-than-expected recovery of the aviation sector, but earnings recovery may take even longer should the COVID-19 situation persist, as it will hurt travel demand until FY2022.
On the upside, a positive long-term outlook is expected from SATS thanks to the recent completion of Terminal 4, the opening of Jewel Changi last year, and the expected opening of Terminal 5 by 2030.
“Despite the current COVID-19 situation, the longer-term traffic outlook at Changi is expected to be positive with the recent completion of Terminal 4, opening of Jewel last year and Terminal 5. We believe SATS is well positioned to benefit from higher air traffic as the increased handling capacity will be able to meet higher demand from more landing slots for airlines and to cater to more tourist arrivals and passengers using Changi as a choice destination for transit,” said Yeo and Sim.
Diversification of its non-aviation revenue streams is also noted as a critical data point to watch regarding SATS. Non-aviation revenues made up 14% of the group revenue in FY2019.
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