SIA must brace for subdued air cargo demand

For three consecutive quarters, strong demand lifted its earnings.

The cyclical upswing in air cargo demand had helped Singapore Airlines, especially its cargo segment, in terms of profits in the past three consecutive quarters.

However, CIMB analyst Raymond Yap observed that the momentum in the demand may have reached its peak.

To recall, SIA Cargo reported earnings before interests and taxes (EBIT) profit of $6m, from an EBIT loss of $34m in 1Q17, which accounted for the majority of the delta in the group’s overall performance.

This was driven by the recovery in global PMI new export orders which benefitted global demand for airfreight with a two-month lag.

"However, as the global airfreight upswing started in mid-2016, the yoy momentum should moderate from 2H17F, given the higher base.

The International Air Transport Association (IATA) postulated that if this PMI new export orders component remains at its June 2017 level in the months ahead, its yoy improvement will most likely moderate.

"Whilst airfreight demand may remain robust, the momentum of its yoy recovery could weaken, which is highly probable, given that the global cargo upswing began in mid-2016, creating a high-base effect for 2HCY17. Still, 2017F promises to be a much better year for global airfreight operators, and is one of the key reasons why we have upgraded SIA’s earnings forecasts," Yap said.