Can the aviation sector withstand visitor downturn?

Their significant overseas portfolios will help them weather the rough flight.

Singapore aviation services will remain resilient despite visitor volatility and cargo contagion, according to a report by financial services firm Maybank Kim Eng.

The report highlighted that SATS Gateway, ST Engineering, and SIA Engineering feature diversified portfolios with overseas operations that make up 10-40% of their earnings, which will buoy revenue growth despite downturns in visitor volumes and contracting cargo volumes.

In particular, SATS Gateway and SIA Engineering delivered revenue growths between 1.1% to 5.3% YoY during the past material downturn in visitor volumes starting early 2014, which saw consecutive quarters of contraction by 0.3% to 6.1% YoY. (pa link naman ng profit reports nila)

Also read: ST Engineering profits climbed 18% to $138.2m in Q2

Visitor arrivals to Singapore further decelerated in June to just 0.4% YoY, stemming from declines from Malaysia and Indonesia, which reportedly make up 45% of ASEAN visitors. On the other hand, Chinese tourists rebounded with a 4.6% to 7% YoY growth between March to June after contracting in late-2018.

Maybank noted that year-to-date (YTD) passenger traffic growth at Changi Airport remains a bright spot in the aviation traffic statistics, outpacing visitor arrivals by 2.5x. However, July 2019 growth slowed to 3.1% YoY, lower than the 5-6% YoY expansion witnessed throughout 2018.

Also read: Changi Airport's passenger movements up 3.3% in July

Furthermore, commercial flights at Changi also declined by 0.9% YoY in July, whilst YTD fell by 0.8% YoY. Maybank believes that this was largely driven by lower cargo aircraft frequency given the collapse in cargo volumes; an estimated 10-12% of commercial flights through Changi are freighters.

Air cargo continues to weigh down on the aviation sector, contracting for the ninth-straight month. In July, air cargo output through Changi hub fell 7.2% YoY, or a 6% YoY decrease during the first seven months of the year--the worst since the Global Financial Crisis in 2009.

“This is not unsurprising in light of the weakness witnessed for many months now in Singapore’s manufacturing activities and export data releases,” the report read. “We believe a part of this air cargo volume contraction is to do with inventories being wound down given the stated lack of order visibility for the tech downstream companies in Singapore and also potentially the diversion of trade from the [ongoing] trade war.”

Despite cargo volume contractions, Maybank noted that SATS gateway services revenue grew 12% QoQ. This, according to the report, reflects Maybank’s sentiments that the island state’s aviation services companies are relatively resilient to the domestic volume trends due to diversification to numerous overseas markets.