AVIATION, FOOD & BEVERAGE | Staff Reporter, Singapore

SATS poised to dominate catering business in Malaysia

It could take 50% seat capacity in Malaysia through its AirAsia partnership.

SATS Ltd. (SATS) said its partnership with AirAsia, the largest low-cost carrier (LCC) in Asia, will give them scale in Malaysia, as the LCC accounts for a third of Malaysia’s seat capacity across 16 airports, UOB Kay Hian revealed.

However, according to their analysis of a recent presentation, if AirAsia’s associates are taken into account, which is part of the joint venture (JV) agreement, the group will have a share of almost 50% seat capacity out of Malaysia.

The JV will also be targeting third-party ground handling works and SATS will have operational control of the JV.

At Singapore’s T4, SATs will retain a 60% effective stake in the ground handling JV. SATS also indicated that the AirAsia group accounted for approximately 50% of the current seat capacity out of T4 and thus was seen as a logical partner.

Here's more from UOB Kay Hian:

Taking into context that current ROE approximates 17%, there was concern among clients that regional expansion could dilute overall ROE.

SATS indicated that expansion takes into account cost of capital, rather than ROE and that they place a higher hurdle rate for overseas operations compared to domestic operations.

SATS declined to provide details on the hurdle rate, but noted that sustainable return on capital could be lower than current returns. 

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