SIA - May 2009 Operating Data—Weakest Since SARS

Target S$8.50: Passenger traffic fell 23%yoy in May as load factor fell to 67%, the lowest since SARS in 2003 (vs. 4Q09 breakeven 77%). Cargo fell 21%yoy, a 61% load factor (4Q09 breakeven 75%). The data suggests SIA may post operating losses in its June-09 quarter results. It takes time to cut excess fleet capacity, and a recovery in premium passenger demand seems some way off. Pressure on yields, uncertainties from the H1N1 flu virus and rising jet fuel prices could see downside risk to FY10E consensus. We concede that the "SATS dividend" (worth S$1.42/SIA share) may give near-term support, but post-Aug distribution SIA loses an annualized c.S$118m from group earnings.

Passenger. Passengers carried fell 23.7%yoy to 1.21m, while passenger traffic measured in RPKs fell 23.7%yoy. Despite aggressive capacity reduction (down 22.8%yoy), load factor fell 7.8ppt to 66.9% with all regions reporting weaker load factors (Americas: -12.4ppt, East Asia: -8.9ppt, Europe: -6.7ppt).

Cargo. Cargo volumes fell by 17.7%yoy while traffic measured in FTKs fell by 20.7%yoy (Mar-09: -21.6%yoy). Load factor, however, rose slightly by 0.5ppt yoy to 61.2% on better capacity management as FATKs fell by 21.4%yoy, with East Asia, Americas and Aus/NZ showing improved load factors.

"SATS dividend": SIA's proposed distribution in specie of its 81% stake in SATS amounts to a "dividend" of S$1.42/SIA share at SATS' share price of S$1.95. The EGM to approve this is on 31 July 2009, with the distribution likely made by end-August. Pro-forma data released by SIA showed that SATS contributed S$118m (EPS S$0.10) of SIA's FY09 S$1.06bn group profit (EPS: S$0.896), but the distribution would reduce group borrowings from S$1.7bn to S$1.45bn.

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