Why SIA shouldn't expect too much from its second freighter pullout

Operating losses still loom in FY14.

According to OCBC Investment research, Singapore Airlines (SIA) announced that it will park another cargo freight plane until May 2014 in an effort to cut its cargo capacity further. This will be the second freighter taken out of service with the first pulled out in Dec 2012. As a recap, in its recent FY13 results, SIA Cargo experienced an operating loss for its second straight year.

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While the move is a welcomed one in light of the weak air cargo market, particularly in Asia-Pacific, we still expect operating losses for the division in FY14 and assert that a turnaround is unlikely even with capacity cuts as cargo yields remain depressed.

Overall, SIA as a group continues to face competitive pressures from other premium carriers, and management has yet to take any concrete steps to invigorate its business prospects.