Chart of the Day: Outlook remains bleak for Singapore’s aviation service providers

Changi Airport on a downward trend for aircraft movements.

Changi Airport saw negligible growth of 0.7% in passenger volume for CY14 and with a downward trend on aircraft movements.

According to a report by OCBC, the operating environment will continue to be challenging for the service providers, especially SATS.

Most of SATS’ revenue is driven by the Singapore market. With the projected slowdown in global economic growth, demand for air travel remains uncertain. With rising labor costs and lower margins due to the rise of LCCs, OCBC analysts maintain their view that SATS’ operating environment will still be challenging in the next one to two years.

OCBC adds that efforts put in to manage cost and drive productivity gains have begun to yield results but here is a limit to which these savings can go and are not enough to offset the negative factors. F

or the engineering service providers, the number of checks continued to fall, as shown in SIAEC’s 3QFY15 results, especially for heavy checks, which typically contributes S$3m – S$6m in revenue per check. This cyclical period of deferred checks by airlines is likely to last through 2015 until their customers’ extended interval runs out.

SIAEC’s management has indicated focus will be placed on managing costs through productivity gains and by improving efficiency of work processes. However, we believe these efforts are not enough to mitigate the decline in revenue from the deferred aircraft checks. The projected slowdown in economic growth could also mean lower air travel demand and further lengthen the interval between maintenance checks.