Here’s why the effect of global headwinds on SIA is worse than you think

It’s expected to book losses by 2017.

The global slowdown has weighed down Singapore’s flag carrier and has taken a toll on its earnings, but analysts may have reason to believe that the impact is bigger than was initially thought.

According to a report by UOB Kay Hian, Singapore Airlines’ earnings have yet to reflect the full impact of a slowing global economy and corporate cutbacks in travel.

“SIA had indicated that business travel was still resilient. However, this could change in coming quarters as SIA also outlined that security concerns could impact demand to and from Europe,” the report noted.

UOB Kay Hian noted that it has lowered its pax yield assumption for SIA to 10.3 S cents from 10.45 S cents previously.

“This implies S$326m in core net profit for the rest of the quarters and very likely a loss for 2QFY17 and 4QFY17. Unless load factors improve, we think the odds of such an outcome are high,” UOB Kay Hian said.

Meanwhile, the report notes that fuel cost will likely be the determining factor which would have a great effect on its earnings.

“If fuel prices decline by 10% or more there could be upside risk to our earnings,” the report said.