Ahead of the release of Singapore Airline (SIA)'s financial results in mid-February, analysts at UOB KayHian are already expecting the group's net profit to be stellar, thanks to the stronger load factors.
UOB KayHian analyst K Ajith said SIA is projected to report a 74 percent growth in headline net profit and 26.6 percent jump in core net earnings for its 3Q18. This is supported by the higher yields from SIA Cargo and the parent airline.
"In 3Q18, pax loads increased 3 percent year-on-year for the parent airline as traffic growth continued to outpace capacity due to stronger passenger demand during the year-end peak period. The growth in profit would be partially driven by SIA's efforts to stabilise yields," Ajith noted.
With regards to SIA Cargo, the high load factors and strong yields would drive its operating profit. In the previous quarter, SIA Cargo recorded a whopping 236 percent year-on-year jump in operating profit, thanks to a higher yield and load factors.
"We expect a similar rate of growth in earnings for 3QFY18 and we are partially guided by the strong 15-22 percent year-on-year increase in cargo yields by Taiwanese carriers over the same period," Ajith said.
And while SIA's parent airline is seen to have performed well in the recently concluded quarter, the same should not be expected from subsidiaries SilkAir and Scoot. Ajith said the two could report declining operating profits amidst rising fuel costs.
The analyst also took note of the possibility of SIA reporting minor fuel hedging gains of up to S$20 million during the quarter.
"SIA had guided that it had hedged approximately 49% of its fuel requirements for 2H18 at about US$65/bbl on jet fuel (including Brent contracts) and has long-dated Brent contracts until FY23 at US$53-59. Comparatively, jet fuel prices averaged US$66.30 in 3Q18," Ajith explained.
Meanwhile, one potential concern that could reduce SIA's projected net profit in the next financial year was the proposed 30 percent increase in landing fees.
Should this happen, Ajith said their net profit projections could fall by 15 percent.
The analyst added, "Based on our estimates, SIA must raise average ticket prices by 1% to commensurate the rise in expenditure."