Why SIA's operations nightmare isn't over yet

-19.8% operations profit could get worse.

According to OCBC Investment Research, the operating environment in the coming months remains challenging for the group. OCBC expect yields to stay depressed. In its latest figures, SIA reported a 19.8% decline in operating profit.

OCBC noted that as evidenced by their recent Apr operating statistics, passenger demand continues to deteriorate – across both the parent airline and SilkAir –and has outpaced cuts in capacity by management. The cargo segment is also likely to stay weak given the persistent weakness in global manufacturing activity and tepid consumer demand.

Here's more:

No clear catalysts for now. Aside from the extension of promotional fares, management has indicated plants to review its network and adjust capacity on weaker routes.

The majority of the planned service adjustments focus on emerging market Asia in an effort to capitalise on the increasing affluence of the region. However, it is premature to speculate on the success of its new initiatives.

With the lacklustre results, continuing challenges ahead, and possible disappointment over the lack of a special dividend that some on the street had anticipated, we expect selling pressure on the counter, especially after it gained ~8% since mid-Apr.

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