Airlines struggle with profit squeeze despite 4.9% traffic rise

Excess capacity and regional competition weigh on airline yields.

Singapore’s aviation sector is expected to see continued passenger growth in 2026, but rising traffic is not translating into stronger profitability for airlines.

Passenger traffic is projected to increase about 4.9% year-on-year in 2026, outpacing GDP growth, according to a DBS Research Group report. Meanwhile, air cargo volumes are expected to grow 2.6%, exceeding global trade growth.

High baseline

In 2025, Changi Airport recorded 70 million passengers, surpassing pre-COVID-19 levels, according to Acting Transport Minister Jeffrey Siow.

In November 2025, the Singapore Airlines (SIA) Group and its Scoot subsidiary carried a combined 3.5 million passengers, with passenger traffic rising 2.6% year-on-year. Cargo carriage increased 12.4% during the month, supported by year-end peak demand and higher utilisation of freighter aircraft.

Capacity trap

However, airlines in the Asia-Pacific, including those based in Singapore, are expected to face ongoing pressure on passenger yields due to elevated capacity growth and intense regional competition.

DBS said SIA is likely to face sustained pricing pressure due to capacity growth in Southeast Asia, increased competition from Middle Eastern carriers offering hub connections, and ultra-long-haul routes from Qantas that bypass Singapore.

By contrast, aviation services, particularly maintenance, repair, and overhaul, are expected to benefit as delayed aircraft deliveries keep fleets older and more heavily utilised. Engine durability issues and spare parts shortages are also expected to lift maintenance activity.

Defence spending rose sharply in FY2025, with expenditure projected to increase 12.4% year-on-year to about $23.4b, as projects delayed by the pandemic and supply chain disruptions resumed.

From FY2026 onwards, growth is expected to slow, with defence spending targeted to remain around 3%of GDP over the next decade, implying low- to mid-single-digit growth over the medium term, the report added.

Recent developments include $2.4b of new contracts secured by Singapore Technologies Engineering Limited under its Defence & Public Security segment, spanning digital systems and cyber, land systems, marine, and defence aerospace businesses.

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