SIA losing long-haul dogfight against aggressive Mideast competitors

Singapore to be sidelined as transport hub.

The country’s flag carrier is fighting a steadily losing battle against stronger middle eastern airlines, a study by Barclays Research revealed.

The report noted that mideast carriers have access to more advantageous hubs and cheaper capital, which are fundamental competitive gaps that will be difficult to close.

According to the study, “The competitive landscape of Singapore Airlines’ (SIA) key markets has significantly changed in favour of the aggressively expanding Middle Eastern carriers, in our
opinion, given their advantages in strategic hub locations and cost base.”

It further revealed that partnerships between mideast and Australian carriers would cause Singapore to weaken as a hub in the Asia-Europe routes.

Here’s more from the report:

SIA's investments in other airlines in recent decades have proved value-destructive, generating annual ROICs of -8 to -36%. SIA appears to be making no change to its acquisitive behaviour given its recent ventures in India and Thailand. We expect little from either of these as the AirAsia Group venture has stolen the lead in those markets.

SIA appears fairly valued at 0.9x FY15E P/B backed by 4.4% FY16E ROE vs. the global peer averages of 1.1x/9.4% and at 6.6x FY15E EV/EBITDAR vs. the peer average of 5.8x. Our price target is based on 1.0x FY15E P/B, slightly lower than the peer average given SIA's relatively lower ROE.

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