Here's what boosted SIA's operating profit in Q2

Thank the better incidental income and load factor.

The doubling in the operating profit of SIA Group's parent airlines to $170m was boosted by better incidental income and load factor, UOB Kay Hian said.

According to an analysis, the airlines reported higher bellyhold revenue, which in turn was due to a cargo recovery and higher aircraft lease revenue.

On the other hand, pax yields declined by the same quantum as Q1 in 2018.

SIA's guidance on outlook has changed somewhat from being “less negative” on yields to “yields remain under pressure”.

The same trend was seen in its sister carrier, SilkAir.

The bulk of the decline in yields was due to weak local currency yields and that forex movement lowered the quantum of decline.

UOB Kay Hian analyst K Ajith said, "We believe that increasing capacity addition by the Chinese carriers towards ASEAN could have impacted short-haul yields for both parent airline and Silk Air. That said, we have assumed that yields will improve by roughly 1.5% in 2H17. Beyond that, there is a possibility that capacity additions by Norwegian Air and Qantas could derail."

Here's more from UOB Kay Hian:

Seasonal demand during the Thanksgiving and Christmas period is expected to lead to further improvement in air cargo yields and load factor. SIA also stated that they will be uplifting more cargo via bellyhold, which should boost parent airline’s profits further.

2Q2018’s cargo yields were already higher than that of 3Q2017’s, when profits rose to a multi-year high of $53m. We believe that cargo profits for 3Q2018 are likely to show YoY growth. Beyond 2018, we believe that cargo recovery could potentially peter out, especially if freighter capacity rises.