Singapore Airlines (SIA SP) - UOB Kay Hian 2018-01-16: Load Factors Continue To Improve Across All Sectors In Dec 17

Singapore Airlines (SIA SP) - UOB Kay Hian 2018-01-16: Load Factors Continue To Improve Across All Sectors In Dec 17 SINGAPORE AIRLINES LTD C6L.SI

Singapore Airlines (SIA SP) - Load Factors Continue To Improve Across All Sectors In Dec 17

  • Singapore Airlines (SIA)’s pax and cargo load factors improved significantly in December as load factors for the parent airline and SIA cargo were the highest in 10 years. 
  • Pax traffic growth continued to outpace seat capacity growth across all sectors, and yields should improve as a result. Improved pax yields and higher load factors should lead to a better profit in 3QFY18. 
  • Maintain BUY. Target price: S$11.90.


Parent airline’s pax load factor rose 1.9ppt yoy in Dec 17 as pax traffic increased 3.1% yoy with little change in seat capacity. 

  • Singapore Airlines’ (SIA) load factor was the highest in more than 10 years as growth was driven by an increase in passenger demand across all regions. 
  • In 3QFY18, the parent airline’s load factor grew 2.6ppt yoy while pax traffic grew 4.2ppt yoy.

SilkAir: Double-digit yoy growth across all metrics in Dec 17. 

  • Passenger carriage grew 12.2% yoy as traffic growth outpaced capacity growth, led by an increase in demand to/from China and Southeast Asia. Dec 17 (and Jun 17) load factor was also the highest in five years. 
  • SilkAir’s pax traffic grew 4.4% yoy in 3QFY18 as pax load factor increased 3.5ppt yoy due to stronger demand during the quarter.

Pax traffic increased 10.2% yoy while seat capacity increased 9% yoy for Budget Aviation Holdings (BAH), which consists of Scoot and Tiger Air. 

  • Budget Aviation Holdings (BAH)’s load factor increased 1ppt yoy and was at its highest since 2014 as passenger demand continued to grow during the year-end peak. 
  • In 3QFY18, BAH’s load factor grew by 5ppt, the most significant improvement in load factor across all sectors.

SIA’s cargo load factor at 88.7% was at its highest in more than 10 years. 

  • Cargo traffic grew 4.3% yoy as demand outpaced capacity changes. The strongest load factor improvement was in Europe and in the West Asia and Africa region, which helped to offset a 5ppt decline in loads to the Americas. 
  • In 3Q18, cargo load factor increased 2.4ppt yoy as cargo traffic grew 4.4ppt yoy.


December marks SIA parent airline’s ninth consecutive month of load factor improvement. 

  • We believe the strong growth in load factors coupled with increasing yields will result in better 3QFY18 earnings.

Rising fuel prices a cause for concern if yields do not increase in tandem. 

  • Brent crude oil futures have risen by more than 50% since mid-17 with prices at the highest since Dec 14. 
  • For FY19, we have assumed that fuel prices will average US$75/bbl. If ticket prices are not raised to commensurate the rising fuel prices, an increase in US$5/bbl is expected to reduce our FY19 PBT forecast by 17%. However, an increase in pax yield by 2.7% will aid in negating any losses to PBT.


  • No change to our earnings estimates.


  • Maintain BUY and target price of 11.90.


  • Strong 3QFY18 earnings.

K Ajith UOB Kay Hian | http://research.uobkayhian.com/ 2018-01-16
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 11.900 Same 11.900