Guess which carriers will hurt Singapore Airlines' profits

Its 8% traffic surge is in danger of crashing.

According to CIMB, despite the improvement in traffic growth in 2QFY12, competition from Middle Eastern airlines will continue to hurt SIA’s yields.

Here's more from CIMB:

The Gulf carriers are now looking to codeshare and set up alliances with other legacy carriers, and we think that they will continue to have a disruptive influence on the Southeast Asian legacy airlines, including SIA.

The parent airline saw traffic surge 8% yoy last month, faster than the 6% growth in capacity. Passenger load factors climbed 1%pt in September, the second consecutive month of improvement.

Notably, loads rose across sectors to Europe, the Americas and West Asia and Africa. Silkair, on the other hand, reported apassenger load factor decline of 3%pt as capacity growth of 18% outstripped the 14% rise in traffic last month.

Cargo volumes remained soft as well, falling for the seventh consecutive month. Cargo loads did improve in September, as the drop in traffic of 4% was overshadowed by a 5% fall in capacity.

SIA’s mainline passenger traffic growth is trending ahead of our estimates. We had forecast revenue passenger kilometre growth of 5% yoy in the July–September quarter, but SIA recorded an increase of 7% yoy instead.

However, management states that yields are “likely to continue to come under pressure as a result of promotional activities”. SilkAir’s traffic last month was also weaker than we had projected; SIA claims that the shift in the Lebaran holidays from September last year to August this year resulted in a decline in outbound travel demand in the month.