Losers weepers: Singapore Airlines to lag regional peers

Even as December load factor hit 82%.

According to CIMB, load factors for SIA mainline rose for the fifth consecutive month as it continued its promotional activities. However, cargo remained underwhelming and SIA is still cutting capacity in this segment.

CIMB thinks that competitive pressures will continue to weigh on earnings. SIA mainline’s load factor climbed 3% pts to 82% in December as passenger traffic rose 6% yoy on a 3% increase in capacity.

Long-haul routes performed particularly well, with load factors to Europe, Americas and the South West Pacific all topping 80% last month. On the other hand, SilkAir suffered a surprising 6% pt fall in load factor last month as passenger growth of 11% was outstripped by capacity growth of 20%.

Cargo traffic was 8% lower yoy, with capacity declining 9% last month. Load factors were weak across routes to East Asia and Americas although SIA notes an improvement in movement of seasonal perishables from the South West Pacific.

SIA highlighted that passenger load factors were helped by strong leisure demand over the Singapore school holidays. However, promotions were also a factor in this improvement and SIA indicates that it will maintain these stimulating measures even though they are likely to compress yields. 

Here's more from CIMB:

We expect SilkAir’s capacity growth to outpace than of its parent in the medium term as the group expands its regional full-service network to improve connectivity.

Also, cargo capacity should decline further as SIA recently parked one of its 13 freighters. Although traffic has improved for SIA mainline, we believe that yields are likely to remain soft as SIA attempts to combat the Middle Eastern airlines and the low-cost carriers.

Unlike the North Asian airlines, SIA’s sluggish cargo traffic looks like it will linger further. Although better economic conditions may help SIA, we believe that its earnings improvements are likely to lag behind regional network peers.