Airlines

Airlines: The International Air Transport Association (IATA) expects global airlines to report record profits for 2014, as fuel costs dive, with airlines to post a record net profit of US$19.9m for 2014 and US$25b in 2015. IATA however guided that US carriers will likely fare the best in 2014, followed by Asia-Pacific carriers, with Brent crude likely to average around $US85 per barrel next year, the first time since 2010 where prices are below the US$100 per barrel mark. The association however cautioned that fuel hedging by airlines meant that it could take some time before the lower fuel prices translate into lower fares, and some Asian carriers could find their hedges working against them instead. Maybank-KE’s has a Buy call on SIA (TP: $12.00), where the house had previously highlighted that depressed oil prices provides SIA with much needed operating leverage, shoring up bottom line. Maybank-KE estimates every US$5 decline in jet fuel prices could add 22% to FY3/16e earnings. Given that carriers typically hedge their fuel requirements 6-12 months ahead, a sustained oil price slump is expected to spur an earnings-revision cycle. This is especially so if SIA maintains its discipline in capacity cutbacks.