Zika virus stings Singapore’s aviation sector

There is more downside risk for SATS.

As the number of Zika virus cases jump in the city-state, not only the hospitality sector is bracing its ill-effects but also the aviation sector.

According to UOB Kay Hian analyst Andrew Chow, there is a more downside risk for in-flight service provider SATS as the rate growth at Changi Airport has already been declining for the past three months.

"Any further erosion could lead to lower flights handled, pax handled and unit meals," he said.

More so, he argued that the problem could be compounded by weak pricing for unit meals amid the continued deflationary pressures as well as weak airline yields.

"Given that labour costs account for 57% of opex (operational expenditure) and have a substantial fixed component, any shortfall in volume would have detrimental impact on earnings," he noted.

Meanwhile, the analyst stated that while Singapore Airlines (SIA) is also likely to be impacted by weaker traffic, its earnings outlook are already muted.

“Almost half of SIA's pax traffic is based on resident outbound travel and we do not expect this segment to be impacted. Still, it is worth noting that SIA had warned of continued wage cost pressures, post an upward revision in pilots/cabin crew remuneration and thus, any sustained decline in traffic will impact SIA adversely,” Chow explained.