Why SIA's Kangaroo route traffic is at risk of falling further

Australia already signed an open aviation market agreement with China.

The weak demand in Southwest Pacific led to Singapore Airlines seeing a decline in passenger volume in November despite the peak travel period.

According to UOB KayHian, this highlights the risk to SIA's traffic on the Kangaroo route, which will likely be exacerbated by the open skies agreement between China and Australia.

"Australia is an important originating market for SIA and loads on this sector could continue to fall," the brokerage firm noted.

In a report from Australian Aviation, it was said that the open skies agreement between Australia and China will pave way for China-based carriers to maintain the furious pace of growth into this country in recent times, catering for the increasing number of Chinese tourists travelling overseas.

Meanwhile, UOB also revealed that SIA's loads fell 1.9ppt on the back of the declining traffic. At 76.9%, SIA's loads were also at the lowest in eight months.

"With the exception of Tigerair which registered flat loads, pax load factors declined across all subsidiaries. Scoot’s pax loads fell 4.5ppt, while SilkAir’s also weakened. The continued weakness in loads in the peak travel period does not bode well for peak 3Q earnings expectations. Ytd, 8MFY17 stood at 77.9%, in line with our full year estimates of 78%," UOB explained.