SIA's earnings to crash in 2013

Will Scoot be successful enough to save SIA when it flies 20% more hours?

According to Nomura, the success or not of SIA’s new long-haul low cost carrier will be a swing factor for earnings and valuations when it starts commercial operations with four B777 by mid-2012 and six by mid-2013.

While Scoot is expected to have significantly lower unit costs than incumbents, as its planes are to be configured to have 25% more seats and to have 20% higher asset utilisation (fly 20% more hours in a day), SIA would not provide a target timing the break-even of Scoot.

Here's more from Nomura:

We note that SIA commands an air passenger market share of 35% in its home base of Singapore. On the back of higher oil prices and weaker air cargo demand, we expect 2013 earnings for SIA  to decline despite relatively firm overall passenger demand and an improved passenger mix.

As the most cash-rich airline in the region, SIA may continue to surprise the market on its dividends. Recall that in its FY11 results, SIA surprised the market on the upside by declaring a special DPS of S$0.80/shr for a full-year payout ratio of 153% and hence an FY11 dividend yield of 13.8%. Given that SIA still has a high level of cash (net cash of S$3376mn as at 31 Mar 12), there is still a possibility that SIA may continue to surprise in terms of dividend payout and/or continue to buy-back shares in the market.