SIA

SIA: Jun operating data. Passenger load factor (PLF) fell to 78.8% vs 82.9% yoy. Pax carriage -0.4% yoy to 1.4m, while capacity grew +4.7% yoy. Co. highlights East Asia PLF was affected by a drop in demand on Japan routes following the Mar'11 earthquake; and for Americas routes, the increase in capacity outpaced growth in pax demand.

SilkAir pax load factor rose 2.4 ppt to 79.1%, with pax carriage growing +10.3% yoy vs +6.9% yoy capacity growth. On cargo front, capacity grew +0.5% yoy vs a +0.7% yoy rise in traffic translated into a +0.1 ppt rise in cargo load factor to 64%, driven by increase in shipments of perishables and foodstuff as well as ad hoc shipments from South West Pacific.

Headwinds continue to loom ahead for SIA. HSBC notes that while premium travel held up in 2Q11, falling PMI and a slowing trade cycle means risks are rising. Points out that PMIs usually lead premium travel by 3-6mths, hence premium travel volume growth could start to fall sharply in 3Q11. Remains cautious on premium carriers, even though the house prefers SIA (Neutral, TP $15) to Cathay Pacific (Underweight, TP HK$17).

On the mass/budget travel segment, Jetstar’s commitment for another US$500m aircraft invmt into its Spore hub by bringing in 7 more Airbus A320 and A330s, will boost its weekly flights by another 40 by year’s end. Most of the new capacity will go into SE Asian and N Asian mkts. Jetstar controls 20% of the AsiaPac low-cost mkt and is a first mover in the low-cost long haul mkt. Expect SIA and Tiger to face increased competition for air travelers, and possibly lower margins.