Weak traffic stats year-to-date (fiscal March year-end) of 0.5% yoy growth are broadly on track to meet our estimate of a 1.5% yoy decline. However, with only one month remaining in the fiscal year, there may be downside risk to FY09E’s load factors estimated at 78%, given higher capacity growth reported at 4.6% yoy (first eleven months) vs. our estimate of 1.0% yoy growth for FY09E. In our view, downside risk to load factors will put pressure on pricing power going forward, an area which has been relatively resilient for SIA vs. its regional peers. Based on our channelchecks, other regional carriers, including Cathay Pacific, have offeredmajor promotional offers on their key long-haul routes, cutting airfares by as much as 50% from peak levels since mid-Dec. In addition, significant trading down observed in the latest IATA data suggests further pressure on pricing for SIA which derives approximately 40% of its business from premium travel. December statistics show premium traffic down 13.3% yoy, down precipitously from -11.5% yoy in Nov vs. economy traffic down 5.3% in Dec, recovering slightly from a 6.0% decline in Nov.
We maintain our Neutral rating and target price as the traffic decline is largely in line with our expectations. However, pricing pressure going forward suggests potential downside risk to SIA’s earnings. This presents a short-term relative opportunity for carriers such as CX where markets are decidedly bearish and may have already priced in substantial airfare cuts.
Sponsored Links
No comments:
Post a Comment