Singapore Airlines (SIA SP) - UOB Kay Hian 2017-04-18: Surprises With The Highest March Load Factor To Europe In Seven Years

Singapore Airlines (SIA SP) - UOB Kay Hian 2017-04-18: Surprises With The Highest March Load Factor To Europe In Seven Years SINGAPORE AIRLINES LTD C6L.SI

Singapore Airlines (SIA SP) - Surprises With The Highest March Load Factor To Europe In Seven Years

  • SIA’s pax load factor rose 2.3ppt yoy in March despite the later Easter holidays. The key positive was an 8ppt rise in load factors to Europe, the highest since FY10, and builds on February’s 5ppt improvement. 
  • Loads could improve further in 1QFY18 post the laptop ban by the US and the UK, especially if there is a diversion of traffic from Middle Eastern hubs. Meanwhile, higher cargo loads should to lead to improved profitability. 
  • Target price: S$10.40. Suggested entry: S$9.90.


Surprisingly strong pax load factor at parent airline despite the later Easter holidays. 

  • Singapore Airline’s (SIA) load factor rose 2.3ppt yoy in Mar 17, led by a whopping 8ppt improvement in loads to Europe. 
  • March’s load factor to Europe of 81.8% was also the highest since FY10. Load factors to the Americas rose 4ppt while that out of South West Pacific fell by the same quantum. At this stage, we are unsure if the improvement in load factors to Europe and the Americas was due to capacity/seat reductions or improved demand. 
  • In any case, the strong improvement in long haul loads bodes well for profitability even if yields remain flat. For 4QFY17, SIA’s pax load factor improved 2.1ppt yoy.

Pax loads declined for SilkAir and Scoot as capacity expansion outpaced traffic growth. 

  • SIA indicated that Scoot was also affected by weaker demand arising from the shift in Easter holidays. For 4QFY17, SilkAir’s pax load was flat yoy, while Scoot’s declined 2.8ppt.

Improving cargo loads continued into March as cargo loads rose 3.5ppt on the back of a 6% rise in cargo traffic. 

  • The stronger cargo loads was led by the East Asia, Europe and Americas sectors. 
  • Meanwhile, 4QFY17 cargo loads rose 2.3ppt, greater than 3Q’s 0.9ppt improvement.


Early signs of improving travel demand; scope for further improvement in pax load factor in 1QFY18. 

  • SIA’s pax load factors and traffic have improved for four consecutive months. Along with lower risk of a steep decline in pax yields, this bodes well for FY18 earnings. 
  • It is also noteworthy that SIA’s 2.3ppt rise in March’s pax loads came on the back of strong traffic growth (+4%) despite the later Easter holidays. Pax loads could also rise further in the coming months as the recent laptop ban in the US and the UK could lead to diversionary traffic away from Middle Eastern hubs to other Asian hubs including Singapore. 
  • About 36% of SIA’s capacity in km-terms is directed towards the US and Europe. If the trend of improving pax loads on the US and Europe sectors continue into 1QFY18, this could also have a positive impact on pax yields due to a greater proportion of business travellers.

Continued strength in cargo loads and potentially higher cargo yields will likely lead to improved profitability in the coming quarters. 

  • We had previously highlighted that SIA could be a beneficiary of stronger global cargo traffic and that cargo yields are likely to improve. Given improving cargo loads and likely yields, we believe cargo losses are likely to narrow in the coming quarters. 
  • Should cargo yields improve in 4QFY17, we believe SIA will likely be re-rated upwards.


  • We lower our FY17 net profit estimate by S$81m as we assume provisions for cargo antitrust fines after taxes.


  • Maintain HOLD and target price of S$10.40. We continue to value SIA at 0.7x FY18F core book value ex-SIAEC, or 1SD below mean P/B. 
  • Suggested entry price is S$9.90.


  • Improving cargo and pax yields, and higher loads.

K Ajith UOB Kay Hian | Sophie Leong UOB Kay Hian | http://research.uobkayhian.com/ 2017-04-18
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 10.400 Same 10.400