SINGAPORE (May 8): While Singapore is in talks with other countries to possibly allow essential air travel, Singapore Airlines (SIA) may not exit the turbulence just yet, according to CGS-CIMB.

In fact, the national flag carrier could incur a wider core net loss of $957 million in FY21 on the back of weaker passenger volume.

See also: Singapore Airlines expects to report 'material operating loss' for 4QFY19/20

CGS-CIMB previously forecast SIA to incur a core net loss of $175 million.

On May 2, National Development Minister Lawrence Wong said that Singapore was working with Australia, Canada, South Korea and New Zealand to facilitate the opening of cross-border essential travel.

See also: Singapore to keep goods and supply chains open with Australia, Canada, NZ, and South Korea; to 'keep markets open' and continue 'trade across borders' with Japan

Essential travel to specific cities in China, like Beijing and Shanghai, could also be allowed.

“While we view this development positively, travel demand may recover more slowly than expected due to health and infection fears,” CGS-CIMB analyst Raymond Yap writes in a note dated May 6.

CGS-CIMB believes that many countries are still keen to maintain strict border controls for an undetermined period.

As such, it has now forecast SIA to record a y-o-y passenger volume decline of 60% in 2Q FY21, instead of 12% previously.

The brokerage has also forecast the airline to record a y-o-y passenger volume decline of 30% in 3Q FY21, instead of 5% previously. 

For 4Q FY21, however, SIA is expected to record y-o-y passenger volume growth of 25%, instead of 30% previously.

Overall, passenger volume is expected to decline 43% y-o-y in FY21, instead of 19% previously.

While CGS-CIMB has maintained its “hold” rating for the stock, it has raised its target price to $4.45 from $4.25 previously.

The higher target price is based on the brokerage’s revised assumption that SIA may choose to refinance some of the mandatory convertible bonds. 

See also: Singapore Airlines to raise $15 bil via rights issue of new shares, mandatory convertible bonds

The refinancing could be pursued via newly issued debt when conditions to raise new debt financing improve, it says.

As at 2.55 pm, SIA was up 1 cent or 0.2% at $4.41, with some 13.7 million shares changed hands.