Singapore Airlines yields soar, China Eastern bid likely


Singapore Airlines’ (SIA) near-term profit outlook looks solid, thanks to continued strong demand in Asia, which is producing very high average passenger load factors. Cost controls are producing a widening gap between actual and breakeven load factors, providing the platform for SIA’s stellar recent operating growth performance.

Singapore Airlines passenger load factor vs breakeven load factor: 1QFY06 to 3QFY08

Source: Centre for Asia Pacific Aviation & Airline reports

Passenger yield growth continues to accelerate, rising a further 12.7% in the third quarter ended 31-Dec-07, thanks to strong premium demand, industry capacity constraints and product upgrades. Yields for the nine months to 31-Dec-07 have soared 11.1% year-on-year.

Singapore Airlines RPKs vs Yield (SGD cents/RPK): 3QFY07 to 3QFY08

Source: Centre for Asia Pacific Aviation & Airline reports

In terms of strategic developments, Singapore Airlines (SIA), currently sitting on a USD3 billion cash pile (SIA Group, as at 31-Dec-07), will undoubtedly be back with another bid for China Eastern Airlines soon. With China Eastern Airlines openly hostile about the prospect of an alliance with Air China, the issue remains wide open.

Any move by SIA would re-ignite the currently stalled ‘Battle for Shanghai’ (ie control of China Eastern Airlines). Global equity market weakness could help deflate Chinese airline stock prices in the meantime, giving a second SIA bid a better chance of success.

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