SIA's Nov passenger load factor falls to 75.2%

Maintain Buy and target price of $14.40

Singapore Airlines’ (SIA) November load factors are showing further weakness, especially for passenger. This is a continuation of the weaker loads in October. On the positive side, fuel prices are coming off in line with anticipated slower global economic activity. Fuel remains the biggest swing factor for earnings. Our valuation on SIA remains based on its robust balance sheet, at 1.2x P/BV. Maintain Buy and target price of $14.40.

Passenger traffic falls for first time. November passenger load factors fell to 75.2% from 78.9% a year ago, on the back of a 2.2% increase in capacity. Traffic itself fell on a YoY basis by 2.6%, the first time this has happened this year. On a sequential basis, load factors were also slightly below October’s 76.7%. Regional airline SilkAir, however, continues to grow, with passenger traffic up 8.4% versus an 11.8% increase in traffic, for a relatively healthy load factor of 79.0%.

Cargo has not deteriorated further. Cargo load factors were sustained on a YoY basis at 64.2%, but did decline sequentially in line with its transition out from its seasonal holiday peak. Both traffic and capacity were slightly higher on a YoY basis. Overall, SIA did not see a particularly good performance during its historically busiest period.

Oil prices finally coming off. Crude oil prices have finally started showing signs of weakness in line with an anticipated slowdown in the global economy. Crude oil has declined by about 6% over the past week and jet fuel has followed suit. Its current spot price of US$120 per barrel is below our full-year assumption of US$130 per barrel. To recap, our sensitivity analysis indicates that every US$10 decline in market jet fuel price will boost SIA’s earnings by around S$300m pa.

No change to our outlook. With the volatility in operating earnings near breakeven, we retain our assetbased valuation of SIA. Our target price is unchanged at $14.40, based on 1.2x P/BV. The 2008 trough valuation was a P/BV of 0.8x, translating to an implied floor of $9.50.

SINGAPORE Airlines (SIA) reported a passenger load factor of 75.2 per cent in November, down 3.7 points from 78.9 per cent a year ago. The fall came as SIA recorded a 2.6 per cent year-on-year decline in systemwide passenger carriage (measured in revenue passenger kilometres) while capacity (measured in available seat kilometres) grew 2.2 per cent. The number of passengers carried dropped 2.7 per cent year-on-year to 1.395 million from 1.433 million. The national carrier said its passenger load factor weakened in all regions, as the increase in traffic still lagged behind the rate of capacity expansion. The flood situation in Thailand also affected demand, particularly on the Bangkok routes in the East Asia region. Ongoing economic uncertainties in the eurozone also impacted travel demand in Europe.