Ballooning non-fuel unit costs are the bottleneck of SIA’s bottomline

Maintenance woes proved the thorn in its side.

Retrofitting premium economy seats took its toll on Singapore’s flag carrier’s earnings, as it contributed heavily to the airline’s $161m increase in non-fuel unit cost, muddying SIA’s net profit.

According to analysts from UOB Kay Hian, aircraft rentals rising by 29.9% to $55m also added salt to the wound, due to higher aircraft leases. However, UOB Kay Hian believes maintenance costs will soon normalise.

Meanwhile, UOB Kay Hian has more reasons for SIA to be optimistic, as fuel hedging losses are expected to at least halve in the second half of 2016.

“This is due to fuel hedges at lower levels, which on its own will provide much of the likely hoh improvement in earnings,” said UOB Kay Hian.

On the other hand, challenging operating environment SIA is still plagued by a challenging operating environment, manifested in its weak pax yields.

“While the fall in pax yields was within our expectations, SIA has also indicated that weaker bellyhold and other incidental revenue also contributed to lower revenue. SIA continues to guide on weak yields and cautions on both passenger and cargo traffic,” UOB Kay Hian said.