Mayday, mayday: SIA to struggle with profitability in 2012

It will be a turbulent year ahead with SIA's load factor for 3QFY12E below breakeven levels at 77.2% and slowing premium traffic growth in the industry.

According to Phillip Securities Research, SIA Cargo is also likely to remain loss making as they do not expect material improvement in its yields for the quarter.

Here’s more from Phillip Securities:

SIA announced the operating statistics for the last 3 months of 2011. Our compilation of the data showed that passenger traffic weakened sequentially for the SIA, while robust demand was recorded for SilkAir.

However, capacity outpaced demand growth for both SIA and SilkAir, resulting in a decline in load factors as compared to the same period last year. SIA Cargo’s statistics improved sequentially, but was largely unchanged year on year. According to data from IATA, premium traffic growth decelerated in Oct & Nov 2011.

How do we view this?
Our analysis suggests that the parent company (SIA) & SIA Cargo could struggle to stay profitable in the quarter. Jetfuel prices remained elevated at levels close to 1QFY12, where both SIA & SIA cargo reported operating losses.

The deceleration in growth of premium traffic also implies that SIA’s passenger yield probably leveled off at best. Hence, we argue that SIA’s passenger and cargo operations could have been below breakeven levels for 3QFY12E.

We attempt to rationalize the profit outlook for the various business segments. With SIA’s 3QFY12E load factor of 77.2% below breakeven levels recorded for the previous 2 quarters and slowing premium traffic growth in the industry, we argue that SIA’s passenger business could be in the red or marginally profitable at best.

Similarly, SIA Cargo is likely to remain loss making as we do not expect material improvement in its yields for the quarter. However, with robust traffic data for SilkAir and consistent performance for SIAEC, we expect the remaining segments to be profitable.