Singapore Airlines set to crash into a S$35m loss quarter

Lower fuel prices cannot offset yield decline.

According to Maybank Kim Eng, while the airlines has benefited from the cost relief of lower jet fuel prices, it was not enough to arrest the downward pressure on yields, which will result in another quarterly loss to the tune of S$35m.

Parent airline & SIA Cargo are expected to post operating losses as well, while SilkAir and SIAEC will likely turn in a profitable quarter.

Here's more from Maybank:

Flat sales, core losses expected. We are forecasting flat top line growth and core operating losses of SGD35mn (1QFY13: SGD72mn, 4QFY13: -SGD44mn) for the quarterly results to be announced on 25th July 2013. While lower jet fuel prices (-5% YoY, -9% QoQ) should provide some cost relief, downward pressure on yields will lead to another quarterly loss. For the key business units, we expect the parent airline & SIA Cargo to report operating losses and SilkAir to be marginally profitable. SIAEC is likely to report another profitable quarter.

Weak load factors for SilkAir. Our compilation of the latest statistical updates showed that load factors declined (-6.8ppt) substantially for SilkAir in the quarter. The continued downtrend in load factors could be attributed to the new routes launched by the regional carrier over the past year. With full year capacity increase of c.10%, we expect load factors to decline in FY14F.

Cargo traffic continued to contract. The airfreight market remains weak with a 5.3% YoY decline in traffic for the quarter. We expect increase in bellyhold capacity for the passenger airlines (SIA, SilkAir and Scoot) to contribute some growth in cargo capacity for FY14F. However, grounding of the second designated cargo freighter (Jun 2013 to May 2014) would lower overall cargo capacity growth and attune supply to the weak market demand.

Another operating loss for the SIA’s premium long haul business for 1QFY14F. We are forecasting another quarterly loss for the parent airline. While the passenger load factor of 78.0% appears relatively high by historical standards, the weak yield environment is likely to result in breakeven load factors of above 80% in the quarter (4QFY13 BELF: 83.9%).

Staying Neutral. Although our FY14F forecast is below street estimates, we maintain our Hold rating as valuations remain cheap by historical standards. As operating environment remains weak, we see little scope for near term re-rating.