Singapore Airlines: Hits 80% of Prepandemic Capacity, Ongoing Stable Recovery Fully Priced In

We think no-moat Singapore Airlines C6L, or SIA, has reached a stable recovery stage with its fiscal fourth-quarter (ended March) group passenger capacity reaching 80% of its prepandemic capacity. This roughly meets management’s guidance, and is marginally below the 81.7% we had assumed. We are a touch disappointed that the opening of China has seen a slightly slower impact on passenger capacity in March, but it does not change our expectation for SIA to hit prepandemic operating levels over the next 15 months. Passenger load factors continued to exceed our expectations and hint at strong yields. Our earnings estimates and fair value estimate of SGD 5.30 are unchanged ahead of the release of its fiscal 2023 results on May 17.

We think SIA has entered the late stage of its pandemic recovery and expect market competition to rise over the next year as capacity bottlenecks at other airlines and at airports alleviate at a quicker pace. However, the high passenger load factors at both SIA’s full service carrier and low-cost carrier, Scoot, of 87.9% and 92.8%, respectively, in March mark continued robust travel demand. Our base-case assumption is for load factors to decline as capacity rises. We suspect the economic slowdown and global banking hiccup will weigh on appetite and think both business and leisure travelers are likely to be more cost-conscious in the future.

Without significant catalysts to fundamentally and abruptly change our thesis, we expect SIA to range trade. We see the shares as slightly overvalued presently. We still see a greater likelihood for earnings to trend lower as activities normalize through fiscal 2026. While we think fiscal 2024 earnings to still be robust, we expect fiscal 2023 to present peak earnings for SIA.