Latest developments are ominous – Mexico, where the outbreak began, just reported a jump to 149 deaths (of which 26 so far have been confirmed as being directly from swine flu) and there are more signs that the virus can jump repeatedly from human to human. This has also prompted the World Health Organization to raise its pandemic alert level, and world governments are taking concrete steps to contain the fallout, including issuing travel advisories and warnings.
The virus has also quickly spread beyond Mexico. News reports now indicate that there are 40 confirmed cases in the US, 6 in Canada, 1 in Spain and 2 in Scotland. However, in almost all cases outside Mexico, people have been only mildly ill and have made a full recovery, with no reported deaths as yet. Other countries are in the process of testing suspected cases.
While there is yet to be any confirmed cases reported in Asia, the rapid progress of the virus seen so far leads us to believe that this would be inevitable, and this could be a significant negative catalyst for SIA. The knee-jerk reaction would also be for people to avoid air travel in the current uncertainty. At the peak of SARS, SIA’s passenger load factor rapidly fell to around 50% for a period of about 75 days but recovered sharply to over 80% as the scare abated. Current passenger load factors are running just under 70%.
During SARS, SIA traded to a low of 0.7x price to book, versus its current level of 0.8x. Of course, the two events are not necessarily comparable in their severity or impact, with these being early days yet for this latest outbreak. As such, we are not changing our forecasts for SIA, and will advise investors as the situation plays out. However, we are advising investors to avoid the stock for now.
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