SIA sees minimal impact from Middle East airspace reroutes

The disruptions followed escalating tensions between Israel and Iran, which led to the closure of several regional airspaces on June 23. 

Singapore Airlines (SIA) is expected to experience only a limited and short-term impact from the temporary airspace disruptions in the Middle East, according to an analyst note from Morningstar.

The disruptions followed escalating tensions between Israel and Iran, which led to the closure of several regional airspaces on June 23. Whilst most countries have since reopened their skies, Iranian airspace remains restricted, forcing SIA to reroute some of its Europe-Asia flights.

Morningstar analyst Lorraine Tan, CFA, noted that the rerouting would slightly increase fuel consumption and extend flight times, which could pressure margins. However, SIA stated the effect is minimal, and Morningstar believes the disruption will be short-lived.

As a result, the research firm is maintaining its fair value estimate of $6.10 for SIA shares, despite a market price of $6.87 as of June 25.

Morningstar also observed that Southeast Asian, South Asian, and Australasian travelers may temporarily avoid transiting through hubs like Abu Dhabi, Dubai, and Doha due to heightened geopolitical concerns.

Despite a slight 1% dip in share prices during the initial trading hours of June 23, stocks for SIA, ANA, and Cathay Pacific have since recovered.

SIA, which Morningstar rates with no economic moat and medium uncertainty, is forecasted to generate $19.54b in revenue for FY2025, with an operating margin of 8.8% and adjusted EPS of $0.85.