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The Star
4 days ago
- Business
- The Star
Runway widens for SIA as Jetstar Asia exits amid aviation turbulence
SINGAPORE: Escalating tensions between Israel and Iran and the tragic crash of Air India Flight AI171 have roiled the global aviation industry and clouded the operational outlook for many airlines, including major carriers like Singapore Airlines (SIA). Yet there could be a silver lining for the national airline amid the turbulence, following the closure of Singapore-based budget carrier Jetstar Asia. On June 12, an Air India plane bound for London crashed outside the perimeter of India's Ahmedabad airport, resulting in at least 271 casualties. The crash could have an impact on SIA, as it holds a 25.1 per cent stake in Air India, following the carrier's merger with Vistara, another Indian airline, in November 2024. Before the merger, Vistara was jointly owned by Tata Sons and SIA. A day later, on June 13, geopolitical tensions rose sharply when Israel launched air strikes on Iran, with Iran subsequently retaliating. The attacks, which continued over the weekend, sent oil prices surging as much as 7 per cent on June 13 before partially retreating. Volatile oil prices could have a direct impact on airlines, including SIA, as jet fuel, derived from oil, is its largest operating expense. US airline shares fell, hit by worries of a broad and protracted Middle East conflict. Shares of American Airlines, Delta Air Lines and United Airlines all finished lower on June 13 before recovering on June 16. SIA shares fell around 1.3 per cent on June 13 to $6.94. They closed lower at $6.88 on June 17. Despite the uncertain outlook, there are unique growth opportunities for SIA, following Jetstar Asia's June 11 announcement that it will close on July 31. SIA will reportedly ramp up flights to key Asian destinations after Jetstar Asia ceases operations. Scoot, SIA's low-cost subsidiary, plans to launch new flights to Okinawa, Japan, and Labuan Bajo, Indonesia. This bodes well for SIA, as Scoot is now well positioned to capture market share following Jetstar Asia's exit, said Morningstar director Lorraine Tan. Maybank analyst Eric Ong said: 'The exit of Jetstar Asia may bring some reprieve in the competitive low-cost carrier market in terms of load factor and yield.' With one less airline operating, there will be fewer available seats, which may lead to higher load factors for SIA and Scoot as more passengers fly on existing flights. In addition, the reduced competition could allow the airlines to stabilise or even increase ticket prices, leading to improved yields and profitability. Jetstar Asia operated around 180 weekly flights from Changi Airport and carried 2.3 million passengers in 2024. Its exit creates a significant gap in the market – one that competitors like Scoot are well placed to fill. For the year ended March 31, SIA and Scoot carried a record 39.4 million passengers. Morningstar's Tan noted that while the exit of Jetstar Asia will have a more material impact on SIA than the crash of the Air India flight and Israel-Iran conflict, oil prices may stay elevated while fighting continues. 'Increased market share and reduced competition could be offset by higher fuel costs and increased associate losses (in 2025),' she said. DBS Bank analyst Jason Sum noted that SIA remains 'relatively insulated' from the rise in Brent crude and jet fuel prices, having hedged around 40 per cent of its near-term fuel requirements. SIA uses a fuel-hedging policy to manage the volatility of oil prices. The higher fuel cost could also be partially mitigated by a weaker US dollar, added OCBC Bank's head of investment research Carmen Lee. In any case, analysts from energy research company Rystad Energy noted that oil prices might already be stabilising, rather than escalating further. For now, the conflict appears likely to be contained, the analysts said, projecting that oil prices will be capped at below US$80 a barrel. The price of Brent crude moderated to hover between US$73 and US$74 a barrel on June 16, after hitting US$78 on June 13. But airlines' growth can also be hit by souring consumer sentiment, if people cut back on their travel plans because of rising tensions in the Middle East, OCBC's Lee said. DBS' Sum also noted that the Air India incident could weigh on consumer perception and potentially slow the airline's transformation. 'This could result in a moderately larger share of losses for SIA, although we do not expect a material impact on SIA's bottom line at this stage,' he said. - The Straits Times/ANN
Straits Times
17-06-2025
- Business
- Straits Times
Runway widens for SIA as Jetstar Asia exits amid aviation turbulence
With one less airline operating, there will be fewer available seats, which may lead to higher load factors for SIA and Scoot. PHOTO: ST FILE SINGAPORE - Escalating tensions between Israel and Iran and the tragic crash of Air India Flight AI171 have roiled the global aviation industry and clouded the operational outlook for many airlines, including major carriers like Singapore Airlines (SIA). Yet there could be a silver lining for the national airline amid the turbulence, following the closure of Singapore-based budget carrier Jetstar Asia. On June 12, an Air India plane bound for London crashed outside the perimeter of India's Ahmedabad airport, resulting in more than 270 casualties. The crash could have an impact on SIA, as it holds a 25.1 per cent stake in Air India, after the carrier merged with Vistara, another Indian airline, in November 2024. Before the merger, Vistara was jointly owned by Tata Sons and SIA. A day later, on June 13, geopolitical tensions rose sharply when Israel launched air strikes on Iran, with Iran subsequently retaliating. The attacks, which continued over the weekend, sent oil prices surging as much as 7 per cent on June 13 before partially retreating. Volatile oil prices could have a direct impact on airlines, including SIA, as jet fuel, derived from oil, is its largest operating expense. US airline shares fell, hit by worries of a broad and protracted Middle East conflict. Shares of American Airlines, Delta Air Lines and United Airlines all finished lower on June 13 before recovering on June 16. SIA shares fell around 1.3 per cent on June 13 to $6.94. They closed lower at $6.88 on June 17. Despite the uncertain outlook, there are unique growth opportunities for SIA, following budget carrier Jetstar Asia's June 11 announcement that it will close on July 31. SIA will reportedly ramp up flights to key Asian destinations after Jetstar Asia ceases operations. Scoot, SIA's low-cost subsidiary, plans to launch new flights to Okinawa, Japan and Labuan Bajo, Indonesia. This bodes well for SIA, as Scoot is now well-positioned to capture market share following Jetstar Asia's exit, said Morningstar director Lorraine Tan. Maybank analyst Eric Ong added: 'The exit of Jetstar Asia may bring some reprieve in the competitive low-cost carrier market in terms of load factor and yield.' With one less airline operating, there will be fewer available seats, which may lead to higher load factors for SIA and Scoot as more passengers fly on existing flights. In addition, the reduced competition could allow the airlines to stabilise or even increase ticket prices, leading to improved yields and profitability. Jetstar Asia operates around 180 weekly flights from Changi Airport and carried 2.3 million passengers in 2024. Its exit creates a significant gap in the market – one that competitors like Scoot are well-placed to fill. For the year ended March 31, SIA and Scoot carried a record 39.4 million passengers. Morningstar's Ms Tan noted that while the exit of Jetstar Asia will have a more material impact on SIA than the crash of the Air India flight and Israel-Iran conflict, oil prices may stay elevated while fighting continues. 'Increased market share and reduced competition could be offset by higher fuel costs and increased associate losses this year,' she said. DBS analyst Jason Sum noted that SIA remains 'relatively insulated' from the rise in Brent crude and jet fuel prices, having hedged around 40 per cent of its near-term fuel requirements. SIA uses a fuel-hedging policy to manage the volatility of oil prices. The higher fuel cost could also be partially mitigated by a weaker US dollar, added OCBC head of investment research Carmen Lee. In any case, analysts from energy research company Rystad Energy noted that oil prices might already be stabilising rather than escalating further. For now, the conflict appears likely to be contained, the analysts said, projecting that oil prices will be capped at below US$80 per barrel. The price of Brent crude moderated to hover between US$73 and US$74 per barrel on June 16, after hitting US$78 on June 13. But airlines' growth can also be hit by souring consumer sentiment, if people cut back on their travel plans because of rising tensions in the Middle East, OCBC's Ms Lee said. DBS' Mr Sum also noted that the Air India incident could weigh on consumer perception and potentially slow the airline's transformation. 'This could result in a moderately larger share of losses for SIA, although we do not expect a material impact on SIA's bottom line at this stage,' he said. Sue-Ann Tan is a business correspondent at The Straits Times covering capital markets and sustainable finance. Join ST's Telegram channel and get the latest breaking news delivered to you.
Business Times
19-05-2025
- Business
- Business Times
Analysts say SIA is fairly valued, with several adjusting target price
[SINGAPORE] Analysts have commented that the share price of Singapore Airlines (SIA) is fairly valued at the moment, even as several lifted their target price and recommended a 'hold' on the stock, after the airline group published its FY2025 results. Their projections for FY2026 net profit range from S$900 million to S$1.4 billion. On May 15, SIA announced a 3.9 per cent rise in its bottom line to a record S$2.8 billion for the full year, boosted by a one-off, non-cash gain of S$1.1 billion from the Air India-Vistara merger. Revenue was at S$19.6 billion, up 2.8 per cent. Analysts from CGS International, DBS, UOB Kay Hian (UOBKH) and OCBC all raised their target price for the airline group to a range of S$6.40 to S$6.88, but Lorraine Tan of Morningstar cut her fair value projection by 5 per cent to S$6.10. Tan expects SIA's operating margin cut to 4.7 per cent and 7.4 per cent for FY2026 and FY2027, respectively, from 8.7 per cent in FY2025 and 14.7 per cent in FY2024, as yields continue to normalise amid supply increases. Current yields, however, remain over 10 per cent above pre-pandemic levels. She lowered her target price to S$6.10 to reflect lower near-term profitability, but she flagged that SIA's yields and load factors could be hit by the low-cost offerings of Chinese carriers as they ramp up their international route capacity. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Her FY2026 net profit forecast is about S$900 million. CGS' Raymond Yap expects that SIA could benefit from the drop in Brent oil price and an appreciation in the Singapore dollar against the greenback, as he adjusted SIA target price from S$6 to S$6.88. He said Brent price decreased to US$66 a barrel in April to May from US$76 a barrel in January to March, while the Singapore dollar rose to S$1.30 currently from S$1.34 as at Mar 31. However, he reduced the cargo and passenger yield assumptions for SIA, as the global business uncertainty brought about by the US 'Liberation Day' tariffs will eventually moderate business travel and cargo demand, and flagged this as the key downside risk from the quarter ending September. Yap's FY2026 net profit estimate is about S$1.2 billion. Analysts from DBS projected cargo could remain more resilient than previously anticipated, as they pointed out that SIA's cargo volumes rose 4 per cent year on year in April, despite trade frictions between the US and its trading partners, and global freight market volatility. They expect the US-China truce in the tariff war to spark front-loading of shipments in the coming months. They said this might lead to upside surprises in cargo volumes and yields as SIA derives about 11 per cent of its revenue from cargo, and its US cargo exposure is about 8 per cent. DBS' FY2026 net profit projection is about S$1.1 billion UOBKH expects SIA's FY2026 core net profit to drop 8 per cent year on year, as it will reflect the full-year impact of Air India's negative contribution while the Indian airline undergoes a multi-year turnaround, with limited visibility on its profitability timeline. However, the analyst expects SIA to generate S$1.4 billion in net profit for FY2026. In 2024, Vistara was merged with Air India, resulting in SIA holding a 25.1 per cent share in the merged entity. OCBC raised SIA's target price to S$6.80 from S$6.50, and projects the airline group's bottom line to be about S$1.2 billion for FY2026. SIA shares were trading 0.3 per cent of S$0.02 higher at S$6.90 at 1.24 pm on Monday.
Business Times
19-05-2025
- Business
- Business Times
Analysts say SIA is fairly valued, with several raising target price
[SINGAPORE] Analysts have commented that the share price of Singapore Airlines (SIA) is fairly valued at the moment, even as several lifted their target price and recommended a 'hold' on the stock, after the airline group published its financial year 2025 financial results. Their projections for FY2026 net profit range from S$900 million to S$1.4 billion. SIA posted on May 15 a 3.9 per cent rise in its bottom line to a record S$2.8 billion for the full year, boosted by a one-off, non-cash gain of S$1.1 billion from the Air India-Vistara merger. Revenue was at S$19.6 billion, up 2.8 per cent. Analysts from CGS International, DBS, UOB Kay Hian (UOBKH) and OCBC all raised their target price for the airline group to a range of S$6.40 to S$6.88, but Lorraine Tan of Morningstar cut her fair value projection by 5 per cent to S$6.10. Tan expects SIA's operating margin cut to 4.7 per cent and 7.4 per cent for FY2026 and FY2027, respectively, from 8.7 per cent in FY2025 and 14.7 per cent in FY2024, as yields continue to normalise amid supply increases. Current yields, however, remain over 10 per cent above pre-pandemic levels. She lowered her target price to S$6.10 to reflect lower near-term profitability, but she flagged that SIA's yields and load factors could be hit by the low-cost offerings of Chinese carriers as they ramp up their international route capacity. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Her FY2026 net profit forecast is about S$900 million. CGS' Raymond Yap expects that SIA could benefit from the drop in Brent oil price and an appreciation in the Singapore dollar against the greenback, as he adjusted SIA target price from S$6 to S$6.88. He said Brent price decreased to US$66 a barrel in April to May from US$76 a barrel in January to March, while the Singapore dollar rose to S$1.30 currently from S$1.34 as at Mar 31. However, he reduced the cargo and passenger yield assumptions for SIA, as the global business uncertainty brought about by the US 'Liberation Day' tariffs will eventually moderate business travel and cargo demand, and flagged this as the key downside risk from the quarter ending September. Yap's FY2026 net profit estimate is about S$1.2 billion. Analysts from DBS projected cargo could remain more resilient than previously anticipated, as they pointed out that SIA's cargo volumes rose 4 per cent year on year in April, despite trade frictions between the US and its trading partners, and global freight market volatility. They expect the US-China truce in the tariff war to spark front-loading of shipments in the coming months. They said this might lead to upside surprises in cargo volumes and yields as SIA derives about 11 per cent of its revenue from cargo, and its US cargo exposure is about 8 per cent. DBS' FY2026 net profit projection is about S$1.1 billion UOBKH expects SIA's FY2026 core net profit to drop 8 per cent year on year, as it will reflect the full-year impact of Air India's negative contribution while the Indian airline undergoes a multi-year turnaround, with limited visibility on its profitability timeline. However, the analyst expects SIA to generate S$1.4 billion in net profit for FY2026. In 2024, Vistara was merged with Air India, resulting in SIA holding a 25.1 per cent share in the merged entity. OCBC raised SIA's target price to S$6.80 from S$6.50, and projects the airline group's bottom line to be about S$1.2 billion for FY2026. SIA shares were trading 0.3 per cent of S$0.02 higher at S$6.90 at 1.24 pm on Monday.
