The bottomline was clearly weighed down by its associate, Air India, with share of losses at $828.5 million. Excluding which, SIA's operating profit for 2HFY2026 was up 72% y-o-y to $1.57 billion, due to stronger passenger yield and traffic growth.
Thanks to a $218 million hedging gain in 2HFY2026, SIA's net fuel cost - its key cost component - was down $178 million.
Issues at Air India will continue to impact. In April, which was after the full year period ended March, Pakistan's closure of airspace to Indian carriers has forced route diversions.
Also, the US-Iran conflict which started in February has largely impacted Air India given the Middle East's transit hub importance for Indian aviation.
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"Air India also operates without a fuel hedging programme, leaving it fully exposed to changes in jet fuel prices. Management has guided losses to remain elevated near term," warns Hashim.
He notes that SIA’s carrying value of Air India associate is at around $1.1 billion as of March.
"Once SIA's investment in Air India is fully written down, Air India’s share of losses will no longer be recognised on SIA's books. This would allow SIA’s underlying operational performance to reflect more in its earnings," he says.
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Meanwhile, in response to the US-Iran fighting, SIA has raised fares across its network.
"However, it will not be sufficient to offset the rise in jet fuel prices and will function as a partial pass-through. With uncertainty about when the conflict will conclude, we expect margin compression from higher fuel costs once SIA’s cheaper hedges expire," says Hashim.
He now values the stock at using a P/B multiple of 1.1x from 1.3x, to reflect heightened sector risk following the US-Iran conflict, and is assuming higher fuel costs for the current FY2027 have been increased to account for cheaper hedges rolling off.
"SIA's strong balance sheet and its special dividend policy through FY28 provide downside support," he adds.
SIA shares as at 10.51 am is up 0.46% to trade at $6.59.
