SIA earnings to lag behind other regional carriers: CIMB

Airlines will succumb to ever-stiffening competition.

Here's more from CIMB:

The Parent Airline’s passenger load factors improved for the third consecutive month in October as SIA continued with its promotional activities. Cargo remained underwhelming, with SIA remaining pessimistic over the near-term outlook for air freight.

What Happened. Passenger load factors of the Parent Airline climbed 1%pt in October, the third consecutive month of improvement. Traffic surged 7% yoy last month against a 6% growth in capacity, with loads to the Americas, Europe and West Asia and Africa rising notably. SilkAir also recorded a 1%pt increase in loads last month as passenger traffic growth of 20% yoy overshadowed capacity growth of 19%.

On the other hand, cargo volumes declined for the eighth consecutive month. Load factors dipped by more than 2%pt last month as the drop in capacity of 10% yoy was insufficient to offset the 13% decline in traffic.

What We Think. SIA highlighted that load factors were helped by an increase in promotional activities, especially on long-haul sectors. It maintains that these stimulatory measures will continue, but they are likely to adversely affect yields. We see SilkAir remaining a faster growing business than the Parent Company as the Group expands its regional full-service network to improve connectivity. Cargo capacity growth should remain on the wane as SIA recently parked one of its 13 freighters.

What You Should Do. Although the Parent Airline’s traffic has improved and SilkAir remains a bright spot, we believe that yields are likely to remain soft as SIA attempts to combat the Middle Eastern airlines and the low-cost carriers. Although improvement in economic conditions may help SIA, we believe that earnings improvements are likely to lag the other regional network carriers.