SilkAir doing much better than parent SIA: CIMB

This as long-haul operations have been pressured by demand weakness in Europe and the US.

CIMB said:

The mainline carrier saw profits drop 64% yoy due to flat yields paired with a 7% rise in unit cost. A 30% yoy increase in the price of jet fuel was the key driver of cost inflation. SIA’s cost management helped ease non-fuel unit costs by 9%.

On a qoq basis, SIA mainline profits rose 54% due to the year-end holidays. Its PLF of 77.2% was only 1.2% pts higher than breakeven. In the final 4Q12, unit costs are likely to stay flat, while PLF could weaken qoq. As a result, we suspect that SIA mainline could see only marginal profits or small losses in the current quarter.

SIA Cargo suffered a S$40m loss in 3Q12, the largest quarterly loss so far this year, and a sharp reversal from the S$48m profit in 3Q11. The board inventory restocking of early 2010 has given way to a contraction in global air freight volumes, causing cargo loads and yields to drop. SIA Cargo’s yield fell 2.5% yoy in 3Q, despite a 10% rise in unit cost.

Long-haul operations have been pressured by demand weakness in Europe and the US. Short-haul demand has held up much better, while fuel cost make up a smaller proportion of the total cost of short-haul flights.

Hence, SilkAir’s operating profit in 3Q12 only fell 29% yoy, with the 4.4% rise in yield partly offsetting the 11.7% rise in unit cost. SilkAir’s 3Q12 PLF of 79% was 19.6% pts above breakeven.