October 5, 2022



• The SIA group’s operational metrics continued to strengthen in July, with overall group traffic reaching 71% of 2019’s level as passenger load factors (PLF) continue to be robust and the airline restored more capacity. 

• PLF at the flagship carrier, SIA, remained near record levels at 87.7%; Scoot saw a significant improvement in PLF to 86.0% during the month, up from 75.2% the previous month, and onpar with its pre-pandemic range. 

• Cargo volumes dipped marginally on a m-o-m basis, while cargo load factors declined again, but were still within our expectations.


Key Arguments:

Recovery in passenger volumes should outpace that of peers in the region. SIA’s international passenger traffic has been recovering at a faster clip than its peers since Singapore launched its first Vaccinated Travel Lane (VTL) in Sep 2021. We expect this trend to persist and envisage the group’s passenger traffic hitting 81% and 102% of 2019 levels by endFY23/24F, respectively, supported by Singapore’s new Vaccinated Travel Framework and the synchronised reopening of borders in the region and other key markets. 

Favourable supply-demand dynamics underpin healthy passenger and cargo yields. Colossal pent-up travel demand and the gradual restoration of passenger capacity will support passenger yields. Cargo yields should also meanwhile remain high due to prolonged widespread supply chain disruptions. 

Valuation does not adequately reflect its brighter earnings prospects. The airline is currently priced at 5.7x EV/EBITDA (FY23F), consistent with its 3-year average prior to the pandemic but at a discount to regional peers. We believe that its relatively promising recovery trajectory and mediumterm outlook justify a multiple above its peers.


Our TP of S$6.60 for SIA is based on 6.5x (1 SD above 3- year pre-COVID19 average) EV/EBITDA (blended FY23/24F). We switched our valuation multiple to EV/EBITDA from P/BV as SIA’s earnings profile has likely stabilised and it allows for better comparison with its peers with differing capital structures.

Where we differ

We have above consensus earnings estimates, as we expect SIA’s passenger volumes to normalise at a faster rate and assumed higher passenger and cargo yields.

Key risks to our view 

The key risks on SIA are 1) countries in North Asia reopening slower than expected, 2) persistent cost pressures stemming from inflation, and 3) passenger and cargo yields softening ahead of expectations.


Passenger traffic to recover to 81% and 102% of pre-COVID-19 levels by Mar-23 and Mar-24 respectively. 

Significant pent-up travel demand across all customer segments, even among corporate travellers underpins our positive view on SIA’s recovery outlook. Passenger traffic will likely recover faster than we initially anticipated as reopening in Asia Pacific continues to pick up momentum.  

Higher-than-normal passenger and cargo yields are here to stay for a while. 

We expect passenger yields to remain buoyant, driven by significant pent-up travel demand, particularly in the premium leisure category. Additionally, air freight rates should remain elevated in the short-term due to protracted widespread supply chain bottlenecks. Immense pent-up travel demand, particularly in the premium leisure category, means higher-than-normal passenger yields should take longer to normalise. Higher air freight rates are also here to stay despite capacity growth due to acute disruptions to logistics networks. 

Stronger ability to manage rising jet fuel prices and other cost headwinds. 

 SIA is more insulated than its peers in an inflationary environment because of its fuel hedging position and cost transformation efforts. Singapore jet fuel prices surged dramatically in 2022 and are currently 60%-70% above pre-crisis levels at US$130-140 per bbl after peaking at US$150 per bbl in early May 2022. This is certainly problematic for airlines, given that jet fuel typically accounts for 20%-30% of total operating costs. 

Robust credit metrics places SIA in a stronger position to optimise and grow its fleet relative to competitors in the region. 

 SIA’s lower financial leverage and significantly competitive cost of funding will enable the group to garner more market share. The median net debt-to-equity ratio of 17 full-service carriers in the region rose to 2.7x in December 2021 from 2.0x in December 2019. SIA’s credit metrics are healthier than most of its peers in the region, with an adjusted net gearing ratio (by treating MCBs as debt) of around 0.9x as of March-22, and a cost of debt of 2.7% in FY22.

BUY by DBS Group Research.  Share price closed at S$5.17