SIA

SIA: January operating statistics weak, partly due to shift in CNY holidays from January (in 2014) to February (in 2015). System-wide carriage declined 3.7% y/y despite a 0.5% reduction in capacity. As such, passenger load factor declined for the fourth straight month, by 2.6pp, to 76.5%.

Long-haul routes offered by the main airline suffered the largest decline in load factor. The Americas routes are 8.6ppt down to 75.5% and the Europe routes are down 3.5ppt to 78.1%. Intense competition, particularly from North Asian airlines, seems here to stay.

Regional airline, SilkAir, performed relatively better. Carriage increased 1.6% y/y, but because capacity expanded by 5.6%, passenger load factor declined 2.7%. SilkAir could have performed better had CNY holidays remained in January.

Cargo performance was flat but disappointing compared to peers. On the back of 0.5% capacity reduction, freight traffic dropped even more (-1.2%), leading to an overall shrinking of cargo load factor by 0.5%.

Contrast the flattish results to its closest competitor Cathay Pacific (CX). CX’s passenger carriage grew 6% y/y and cargo traffic surged 14% in January 2015.

Overall, we say SIA’s January results was disappointing, and February results will be searched for signs of operational turnaround, particularly in capacity and yield management.

For now, the largest swing factor is its fuel hedges, which had elevated SIA’s operating costs (and price per ticket) while other airlines scrambled to adjust down their fuel surcharge to offer lower, more competitive pricing.

The street is divided on the counter with 8 buys 10 Holds and 3 Sells and average consensus TP of $12.25