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SINGAPORE Airlines is likely to post an operating loss for the April-June quarter - thanks to weak travel demand and pressure on yields. But the worst may be over, if the recent pick-up in key economic indicators is any guide.
Analysts polled by BT said that although SIA is seeing a sequential improvement in operating conditions, the recovery is anaemic and yields are poor.
The airline's June passenger traffic fell 18 per cent year-on-year - less than May's 23 per cent fall, which was the biggest year-on-year drop since Sars.
The passenger load factor improved to 75.5 per cent in June from 66.9 per cent in May, helped by capacity cuts and a seasonal upswing in demand.
On the cargo side, the load factor was 62.9 per cent - a modest rise from June 2008's 61.6 per cent and May 2009's 61.2 per cent. Traffic was down 20.8 per cent year-on-year, but a 22.3 per cent cut in capacity outpaced this fall.
However, the improvement in load factors came at the expense of yields, which have been under pressure due to lower fuel surcharges, the H1N1 flu outbreak and passengers trading down from premium to economy seats.
The area in which SIA feels the greatest pressure - and is likely to continue seeing poor numbers for several months at least - is premium seats. It gets about 40 per cent of its income from front cabins, but demand has plunged due to cut-backs in long-haul corporate travel and downgrading to economy class on regional routes.
According to the International Air Transport Association, premium-seat demand fell 32 per cent in the Far East in May. It was down 31 per cent across the Pacific and 26 per cent down from Europe to Far East.
These are all important routes for SIA.
In any case, despite the sequential improvement in loads, the overall April-June quarter's load factors - at 71.6 per cent for passengers and 60.6 per cent for cargo - were well below the previous quarter's break-even levels of 77 per cent and 75 per cent respectively.
Citigroup's Robert Kong and Ivan Lim noted that there was risk that break-even levels moved even higher in June, given SIA's over-capacity and a quarter-on-quarter increase in jet fuel prices.
SIA reports its first-quarter results next Thursday and if it does post an operating loss, it will be the first since 2003.
'The big question is whether a bottom has been reached,' said Vincent Ng of S&P Asia Equity Research. 'I think there has been some improvement. But the key issue is whether and when the recovery in business confidence translates into an improvement in premium-seat demand.'
Over at JP Morgan, analyst Corinne Png has upgraded the airline sector, including SIA.
Judging by SIA's share price, which has held up quite well above $13, most market watchers seem to agree.
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