SIA At Risk of Only Second Quarterly Loss in History as Traffic Dives

March 2009 passenger traffic down 22% yoy — Passenger business dived in March (Feb-2009: -17%), for a March quarter load factor of 71.2%, the lowest since SARS, and 1.5ppts below the December 2008 quarter breakeven of 72.7%. Cargo load factors fell further to 56.5% (vs. Dec-2008 quarter breakeven of 63.4%), suggesting deepening losses. The March quarter breakeven levels have been helped by lower spot fuel prices, but hurt by lower yields from fuel surcharge cuts, promotional packages and weak demand at the front of the plane. We maintain our Sell (3L) rating and S$8.50 target price.

March 2009 operating data — The sharp decline in passenger traffic (- 21.8%) against 9% capacity cuts resulted in passenger load factor falling by 11.3ppt to 69.4%. All regions experienced lower PLF, particularly Europe (- 18.4ppt) and Aus/NZ (-13.0ppt). The cargo load factor dropped 4.3ppt yoy to 58.5% as traffic declined by 18.0% while capacity was reduced by 12.0%.

4QFY09 traffic — For the quarter ending March 2009, passenger traffic fell 15.2% yoy (3QFY09: -1.2%), while PLF declined by 8.2ppt yoy to 71.2%, possibly below breakeven (3QFY09 breakeven: 72.7%). Cargo is likely to suffer higher losses as traffic slumped 16% for the quarter, dragging the load factor down to 56.5% (3QFY09 breakeven: 63.4%).

Operating update — SIA will progressively implement the planned 11% reduction in fleet capacity to try and cut costs, as well as a shorter work week for senior management and pilots. Earnings will be helped by lower tax rates and the job credit scheme. Hedging losses could continue to hurt earnings through Jun-09, as spot prices peaked in Jun-08 (at US$180/bbl). However, book value erosion may taper off if spot prices continue to level off as in recent months.

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