Here's the biggest problem of SIA's passenger business

This area has been gradually slipping.

According to DBS, the key area of concern for SIA’s passenger business lies in its passenger yields. Given the backdrop of a still soft global economic environment, albeit one that is recovering mildly, passenger yields have been gradually slipping. 

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The strength of the S$ also means that revenue earned in other currencies result in a lower S$ yield for the Group. We have assumed a passenger yield of S11.4cts for FY14, and S11.5cts for FY15, compared to S11.5cts for FY13.

Jet fuel prices has stabilised substantially in the last 2 to 3 years, generally trading at between US$110 per barrel and US$140 per barrel.

On a rolling 12-month basis, jet fuel has averaged down from US$130 per barrel to about US$125 currently. While jet fuel prices remain high, we do not expect significant increases to exert further pressure on SIA’s margins.

We have assumed a jet fuel price of US$125 and US$130 for SIA’s FY14 and FY15 respectively, compared to US$130 for FY13.

We have lowered our FY14 and FY15 estimates by 10% and 8.5% respectively, by lowering our load factor assumption for both years from 80% to 79.5%. The key risks to our forecasts are yields, as well as the performance of SIA Cargo.