Is There Any Value in Singapore Airlines Ltd (SGX:C6L)?













Singapore Airlines Ltd (SGX: C6L), one of Singapore’s home-grown brand name with a global presence.


The Singapore Airlines Story

The Singapore Airlines story can be traced back more than 60 years ago when Malayan Airways Ltd Airspeed Consul took off from the old Singapore Kallang Airport. The Singapore Airlines brand can be well represented by the famous “Singapore Girl”, a sarong kebaya uniform donned by SIA’s air stewardesses. Today, Singapore Airlines remains as one of the top global airlines competing against the likes of the Emirates Group and Qatar Airways. With such a competitive and well-regulated industry, can SIA still stay in the game?


Business outlook seems bleak

Singapore Airlines is a S$13.6 billion company and one of STI’s constituents. Its revenue is mainly driven by its airline operations which provide commercial flight services across the globe with a small proportion  (14.7%) in cargo operations. Revenue has grew at a slow 1.7% CAGR from FY2006 till FY2014 (fiscal year ends in Sep) with recent years being further impacted by continued intense competition and overcapacity. This has been accentuated by the advent of regional low-lost carriers (LCC). Profit margins have also been declining where EBITDA margin have dropped from 21% in FY2011 to 12.4% in FY2014. In addition, it is inherent for airline companies such as Singapore Airlines to face internal cost pressure such as fuel prices and aircraft purchases. Fuels costs and aircraft depreciation & lease rentals have already contribute more than 50% of total operating costs.


Does this dark cloud have a silver lining?

Of course, Singapore Airlines is not just sitting by and getting its profit margins squashed by rivals. The Group continue to maintains strategy of owning a portfolio of companies in different market segment of the commercial travel market. Apart from Singapore Airlines and SilkAir Singapore Pte Ltd covering the premium market, the Group also owns Scoot which targets the medium-haul low-cost segment and has recently increased its stake in Tiger Airways from 40% to 56% (effectively making Singapore Airlines a controlling stakeholder) which similarly targets the low-cost segment. In addition, Singapore Airlines is working to expand its global presence where the Group has established a JV airline with TataSons, based in New Delhi, India. Scoot is also establishing a new base in Bangkok through a JV airline with Thailand’s local carrier Nok Airlines PCL (BKK: NOK).


Value in Action

56.2% owned by Temasek Holdings, Singapore Airlines continue to face intense competition in the commercial aviation industry and has to simultaneously grapple with its high fixed costs.


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All views and opinions articulated in the article were expressed in Willie’s personal capacity and do not in any way represent those of his employer and other related entities. Willie does not own any shares in the companies mentioned above.


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