Here’s why cheaper jet fuel alone can’t make SIA’s earnings take off

It’s facing industry-wide deteriorating yields.

While Singapore Airlines may get a slight nudge on its earnings due to cheaper jet fuel, it’s not yet time to celebrate for the city-state’s flag carrier as analysts say this upside alone is unlikely to sustain earnings for the airline.

According to a report by OCBC Research, this is mainly due to industry-wide deteriorating yields, as well as expected increase in expenses with capacity growth in its sister airlines Scoot and SilkAir.

Additionally, it also has to deal with increasing capex with new cabin products in CY17, in addition to on-going retrofitting of aircraft with new cabin products already previously introduced, and potential delay in delivery of A350s.

“We believe weakening yields are likely to persist as Chinese carriers boost long-haul capacity to Europe and the North America, while Gulf carriers continue to increase capacity to Europe,” OCBC noted.

Meanwhile, Brexit has also made global economic outlook more uncertain, denting air travel demand as GBP and EUR depreciates against major currencies.

“The silver lining is SIA’s low cost carriers (LCCs), where yield pressures are less severe. Even so, we think Scoot’s growth will not be enough to offset yield weakness in parent airline and SilkAir,” OCBC added.