One year into the outbreak of Covid-19, Singapore Airlines still has “little to cheer”, with the carrier likely to remain in the red in its quarterly results, says UOB Kay Hian analyst K Ajith.

With leisure travel still off the cards, SIA’s latest operating statistics means the carrier faces an expected core loss of approximately $470 million in 3QFY2021, says Ajith in a Jan 14 note. 

Ajith is maintaining “sell” on Singapore’s flag carrier, with a target price of $3.80. SIA’s share price formerly reached a 52-week high of $6.38.

Affected operations 

While Ajith notes q-o-q improvement in traffic for 3QFY2021, load factors dipped. “SIA’s capacity growth outpaced traffic growth and this could potentially be due to the suspension of the Singapore and Hong Kong travel bubbles for the parent airline and renewed Covid-19 concerns.”

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Still, December’s pax traffic was the highest since Covid-19, though load factors for the period at 14% was only marginally better than November’s 13.9%. 

See: Singapore Airlines raises US$500 mil in US dollar debt debut


Ajith notes that group pax capacity as at last December amounted to 18.6% of pre-Covid-19, compared to guidance of 20%. SIA guided that group capacity will amount to 25% of pre-Covid-19 by March and that it plans to operate 45% of points, prior to the pandemic.

“For FY2022 and FY2023, we have assumed that group pax traffic will amount to 33% and 85% respectively of pre-pandemic levels and have factored in a 43% rise in pax yields for the parent airline in FY2022,” says Ajith.

Cargo operations are the sole bright spot, notes Ajith, with higher q-o-q load factors. “If yields hold up, we expect q-o-q improvement in revenue. In late-December, SIA transported Covid-19 vaccines and the carrier recorded a 6.1% m-o-m improvement. We estimate that the bulk of the vaccines would be delivered by 1QFY2021.”

Stock impact

Ajith notes that SIA’s 3QFY2021 core earnings are unlikely to be materially different from the previous quarter’s core loss of $470 million, excluding impairment charges. 

See also: Singapore Airlines considers offering first-ever dollar bonds to bolster liquidity


In addition, grants from the Jobs Support Scheme (JSS) are expected to be lower for 3QFY2021 and this could lead to a higher cash burn q-o-q. 

As at Dec 13, 2020, SIA had utilised $7.1 billion, or 80% of the rights and convertible bond proceeds. This includes $0.9 billion utilised from Oct 14 to Dec 13, with $0.5 billion utilised for operating expenses, $0.2 billion for ticket refunds and another $0.2 billion for interest and debt repayments. 

“At this stage, we are unsure if the latest cash burn factors in cash inflow from the October payout under the JSS,” notes Ajith. 

That said, a digital travel pass could be a precursor to opening up international travel.

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SIA is currently adopting the International Air Transport Association’s digital travel pass framework which allows passengers to check on testing and vaccine requirements, provides details on qualified testing centres and enables such centres to provide certifications and results securely via the app. 

“While this could facilitate more efficient check-ins and immigration clearances, the stringent travel requirements could deter business and even leisure travel, especially for large families,” Ajith points out.

For FY2022, Ajith assumes that capacity would amount to 51% of pre-Covid-19 capacity and traffic will amount of 33% pre-Covid-19 traffic.

“We continue to value SIA at 0.9 times FY2022F’s book value… We have factored in the $3.5 billion in mandatory convertible (MCB) bonds as equity but have factored in dilution from the deemed conversion of the MCB for FY2022.”

As at 11.49am, shares in SIA are trading 11 cents down, or 2.51% lower, at $4.28.