SIA

SIA: its 100% owned unit SIA Cargo has cut freighter capacity by 20%. Mgt noted that the air cargo mkt has shown weakness for the past 9mths, and the depressed demand across all markets give little reason to be optimistic about the near term outlook. Said it expected no improvement in 1HCY12 (traditional low season for the air cargo market) and stubbornly high fuel prices to continue pushing up costs.

JPM estimates this implies a ~10% reduction in SIA’s overall cargo capacity, as the bellyhold cargo capacity will remain. Says this is positive and will boost its load factors and mitigate losses. Recall SIA Cargo’s loss widened to $40m in 4QCY11 vs $17m in 3QCY11.
Still, the house believes SIA is better off than Cathay Pacific which has a more aggressive planned capacity expansion of ~10% this yr, after trimming it down from ~17%. Adds potential upside surprises could come from the tech sector’s restocking and the new iPad 3 shipments, as airlines have the flexibility to adjust their freighter capacity very quickly (within 1-2days vs ~1mth for the passenger business), should there be a pick up in cargo demand.
JPM has an Overweight rating on SIA.