Singapore Airlines

OCBC on 21 May 2012

Singapore Airlines (SIA) last week announced that the parent airline will be suspending services to Abu Dhabi and Athens, with the last flight scheduled on 26 Oct 2012. While the group is looking to optimise the parent airline’s service network by removing unprofitable routes, it is planning for SilkAir to play an increasingly bigger role. SilkAir is targeted to boost capacity by 22% in FY13, grow its service network to more regional secondary cities, and serve as a more extensive feeder to the parent airline. SIA is also eyeing increased collaboration between Scoot and 33%-owned associate Tiger Airways, which should get easier since both LCCs will be flying out of Terminal 2 at Changi Airport starting from Sep 2012. We maintain our fair value estimate of S$10.85/share and HOLD rating on SIA.

Services to Abu Dhabi and Athens withdrawn
Singapore Airlines (SIA) last week announced the parent airline will be suspending services to Abu Dhabi in the UAE and Athens in Greece, with the last flight scheduled on 26 Oct 2012. The withdrawals come after continued weak operating statistics on these routes. The parent airline will continue to serve Dubai in the UAE and offer connections to Athens via its Star Alliance partners.

CEO’s vision
The Business Times also carried an extensive interview with SIA CEO Goh Choon Phong, who shared his vision in growing the group. With a centralised capacity and route planning, SilkAir is likely to play an increasingly bigger role within the group. SilkAir is targeted to boost capacity by 22% in FY13, grow its service network to more regional secondary cities, and serve as a more extensive feeder to the parent airline. This move to focus the group’s growth in Asia also allows the parent airline, which is set for a considerably lower 3% addition to its capacity in FY13, to optimise its service network by removing unprofitable routes.

Possible Scoot tie-up with Tiger Airways
SIA’s new mid-to-long haul low cost carrier (LCC) Scoot recently announced it will be flying to Bangkok starting from Jul 2012, which baffled investors by competing directly with the group’s 33%-owned associate Tiger Airways (TGR) in a short haul route. However, SIA CEO revealed that, without interfering with the management of TGR, the group is looking at increased collaboration between the two LCCs. While the proposed collaboration should get easier since both LCCs will be flying out of Terminal 2 at Changi Airport starting from Sep 2012, it is still unclear as to how the two LCCs will complement each other.

Maintain HOLD
By sharing its vision with investors, SIA has shown it has a clear strategy in navigating these tough times for aviation. We maintain our fair value estimate of S$10.85/share and HOLD rating on SIA.