Singapore Airlines warns of stronger headwinds ahead

Passenger traffic posted a steep decline of 6.8%.

Singapore Airlines’ (SIA) operating results for the financial period Aug 2016 indicates a weakening demand amid intensifying competitive environment, said OCBC Investment Research.

SIA saw passenger capacity growth outpace passenger traffic growth across all its passenger airlines. Overall passenger load factor (PLF) for Aug 16 fell 5.2ppt YoY to 79.7% as capacity grew 3.6% while passenger traffic declined 2.9%.

For the parent airline, passenger traffic posted a steep decline of 6.8% YoY on softer demand across all regions against a 0.3% decrease in capacity, resulting in 5.6ppt fall in PLF to 80.0%, the lowest for the month of Aug since 2012.

SilkAir’s numbers were disappointing as traffic decreased 2.0% YoY against a 5.3% expansion in capacity, which led to a 5.2ppt drop in PLF to 71.0%.

For Scoot, capacity growth of 61.8% YoY outpaced traffic growth of 52.8%, resulting in a 4.8ppt fall in PLF to 80.4%.

SIA Cargo, however, was the only one that posted positive growth in PLF as demand outpaced capacity changes, across all regions except for West Asia and Africa.

That said, OCBC Investment Research believes SIA Cargo sacrificed
cargo yield for PLF growth.

Coupled with competition from the Gulf and Chinese carriers, OCBC said passenger yields will continue to be under pressure in the
near to medium term.

Furthermore, it thinks SIA’s Aug 16 operating results have yet to register any possible impact from rise in Zika virus cases in Singapore, which only made news in late-Aug.

"Note that numerous countries (e.g. Australia, U.K. etc.) that SIA has
strong presence in have also issued travel warnings on Singapore," the research firm said.

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