SIA - April loads factors show further improvement

With weak load factors a given in the current economic climate, Singapore Airlines’ (SIA) April’s numbers were better than expected. SIA showed resilience on both the passenger and cargo side. While YoY, both indicators slid by 4.2 pts and 3.7 pts respectively, passenger load factors at 72.2 were a sequential 2.8 pt improvement over April, while cargo load factors at 58.0 was flat.

On a YoY basis, passenger loads slid by 17.7%, but was an improvement over the 20% slide seen in March 2009. Cargo’s loads slid by 21.6%, versus an 18% decline in March. However, we are encouraged by SIA’s response to market conditions through capacity cuts. For April 2009, Passenger capacity was cut by 12.9%, while cargo was reduced by 16.5%. This level of reduction is ahead of assumptions.

While we warn that April’s load factors could be an anomaly rather than a trend, the signs are encouraging. Management’s recent indication that forward bookings are showing signs of leveling off are also cause for optimism, but we share management’s caution in its outlook. We also note that May’s passenger load numbers have a strong likelihood of being weak, which was during the height of the H1N1 flu virus scare.

We are maintaining our net FY10 profit forecast at S$865m. We expect SIA to remain profitable, despite lower revenues, due to reduced operating overheads, such as fuel and staff costs. We re-iterate our Buy call on SIA, with a target price of S$13.20, based on 1.1x book value.

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