Global aviation has returned to 2019 pre-pandemic levels, according to a June report by the International Air Transport Association (IATA). While public health officials are glad to put this episode behind them, it also means the aviation industry needs to brace for tepid growth ahead for the foreseeable future as revenge travel has dwindled.
Nonetheless, air travel within Asia Pacific is expected to continue growing at a rate above the global clip, underpinning demand over the longer term. “Growth in Southeast Asia and India are two places where we have continued to build strength in, and in my opinion, will continue to grow within our expectations,” says Singapore Airlines CEO Goh Choon Phong, referring to various projections made.
“I don’t see how India’s growth will be affected in any significant manner, and neither will Southeast Asia’s, so we believe we are well-positioned, and we will continue to strengthen our stance,” says Goh, speaking at the airline’s 1HFY2025 ended Sept results briefing on Nov 11.
In 1HFY2025, coming off record results in the immediate post-pandemic years, SIA’s earnings dived 48.5% y-o-y to $742 million, while revenue inched up 3.7% y-o-y to $9.5 billion. Yields — a measure of how unit profitability eked out by the airlines — dropped 9.0% y-o-y to 11.1 cents per km as intensifying competition weighed on margins.
Chief commercial officer Lee Lik Hsin explains that the dip in yields is a broad-based decline and not specific to any particular class of seats or routes. “We expect the yield moderation to continue, but as pointed out, you will see that the yield lines are still quite healthy above the 2019 pre-Covid levels.”
Despite the earnings drop, SIA is meeting the competition head-on with additional capacity and better products instead of scaling back. “We do not hold back on capacity growth just because there’s competition in the market. That’s not what SIA has done in the past and not what SIA will do in the future. We will adapt and go to growth where it is of the best use to us,” says Lee.
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Besides slower revenue growth, the lower bottom line can be attributed squarely to higher fuel and non-fuel costs. Non-fuel costs, which include higher staff costs, were up 16.6% y-o-y to $3.09 billion in 2QFY2025 ended Sept, bringing 1HFY2025 increase to 12.1% y-o-y to $5.97 billion. These cost pressures are expected to continue, after SIA’s home airport at Changi has announced higher charges for passengers and airlines to help fund a $3 billion upgrade.
One way SIA plans to meet stiffer competition is to constantly improve its products. On Nov 4, the airline announced it was spending $1.1 billion to upgrade first-class cabins in its fleet of Airbus A350s. “We always want to bring the best to our customers,” says CEO Goh.
He adds: “If you offer better products, you can expect demand to be stronger, and therefore, we might have greater capabilities and results — that’s the general statement. So, when we introduce the investment and see what impact it could have on yields? Well, we’ll see when the time comes.”
See also: SIA Group’s passenger traffic up 8.3% y-o-y in November
SIA is also busy beefing up its network of codeshare partners, including within the key market of Southeast Asia. On Nov 12, SIA and Garuda Indonesia announced they would increase flight frequencies. From Nov 22, SIA would increase its daily flights from six to eight, while Garuda would follow suit on Dec 1, adding two more flights to make it six daily. Come Dec 1, the two airlines will have 390 weekly codeshare services, including 362 connecting Singapore and Indonesia.
While SIA has made clear its intention to stay flexible and competitive, investors are more worried about slowing growth. Following the 1HFY2025 results, analysts at CGS International (CGSI), UOB Kay Hian (UOBKH), PhillipCapital, OCBC Investment Research (OIR) and Maybank Securities have all lowered their target prices or fair value estimates to $5.88, $5.72, $5.25, $6.40 and $6.30 respectively, with a mix of calls to “reduce” or “sell” or “hold”. Year to date, SIA shares have dropped 3.98% as of Nov 12 to close at $6.28. It scaled a recent peak of $7.38 in February.
CGSI’s Raymond Yap says lower yields are not a surprise, but the “pace of decline” is. “As we head into the year-end travel peak, we expect demand to be robust but at weaker yields that could impact profitability, even though lower oil prices could buffer the impact; this is the potential de-rating catalyst behind our ‘reduce’ call,” adds Yap.
Meanwhile, Maybank’s Eric Ong notes following the completion of the merger between Air India and SIA-controlled Vistara, SIA will recognise a non-cash accounting gain of around $1.1 billion and the group will also start equity accounting for its share of Air India’s financial results.
He writes: “Based on the previous agreement, SIA’s additional capital injection is expected to be INR31.9 billion ($498 million) via subscription to new Air India shares, which allows the group to maintain its 25.1% stake in the Indian carrier.”
CEO Goh says that any future investment from the group, however, will be considered based on Air India’s expansion plans and available funding options. “There are many ways that Air India could get funding, to how they will be funding the expansion, that will be something that we think Air India is in a better position to respond to.”
Sats aiming high
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As SIA grapples with lower yields amid tougher competition, the story is different for ground handler Sats, which used to be a subsidiary of SIA before common controlling shareholder Temasek Holdings assumed direct control.
In 1HFY2025 ended September, Sats reported earnings of $134.7 million compared to $7.8 million in losses a year earlier. To mark the full integration of Worldwide Flight Services, which was acquired last April, the group is also in the process of a rebranding.
In line with the return to profitability, Sats declared an interim dividend of 1.5 cents per share, sparking some hope that the company is poised to be the steady dividend-paying stock it once was.
However, Sats is careful not to tie itself down with a dividend policy — at least for now. Group CFO Manfred Seah recognises that rewarding shareholders is a priority. “Having said that, today, the complexion of our business has changed, and it is unlikely that we will return to the days where we pay out anything between 70 to 80% of earnings.”
So, while dividend per share might grow with earnings recovery, Sats’ shareholders must be aware that it now has more debt to service and more capex to fund, says Seah. As at Sept 30, Sats has a debt of $3.96 billion, down from $4.09 billion as at March 31.
Meanwhile, Seah maintains that with various key plans in place, Sats is on track to reach an earlier articulated revenue target of $8 billion and return on equity (ROE) of 15% by FY2028 and a market cap of $10 billion in the years after. In 1HFY2025, Sats, with a market cap at around $5.6 billion as of Nov 12, posted a revenue of $2.82 billion.
Seah explains that the $8 billion revenue target is “aspirational” and an “internal goal” for the company to work towards. “As revenue scales up, we are able to taper down the cost to ensure that it doesn’t grow in tandem with revenue, and that will help the expansion of margins. Quarter-on-quarter, we have been tracking an expansion of our margins because of better operating leverage.”
CEO Kerry Mok adds: “To be clear, we’re very focused on total shareholder’s ROE as well. So, we look at driving profitability. But in terms of the market cap of $10 billion, we can’t influence or control that other than to control profitability. If the market likes what we do and drives profitability, and we think those multiples apply, hopefully, the market sees our value and values us accordingly.”
In the mid-to-long term, Mok points out that Sats benefits from not being tied to any particular region, which means overall growth can be generated even as cargo supply dynamics change. For example, when the war in Ukraine broke out and caused disruptions to the regular cargo flow pattern, Sats could divert the volumes elsewhere and continue comprehensive growth. “I think we are in the best position to continue to navigate in this environment no matter what happens.”
Mok adds that Sats is also working with a new set of customers in the form of freight forwarders, which allows the group to manage more end-to-end solutions and, on a global basis, capture new revenue streams not possible previously. “And I’m pleased to say that we continue to grow our share of wallet.”
With the positive results and optimistic outlook, OIR, PhillipCapital, and DBS Group Research analysts have all kept their “buy” calls and raised their target prices to $4.38, $4.62, and $4.40, respectively.
DBS’s Jason Sum notes that Sats’ non-travel-related food business should also register healthier growth, thanks to its expanding product portfolio and customer base and increased production capacity and footprint.
The acquisition of WFS should yield better operational and financial synergies over the coming few years, says Sum, who is projecting FY2027 earnings to reach 25.6 cents, which is 119% of the pre-pandemic FY2019 level. “We continue to be positive on its growth narrative and see further upside hereon,” adds Sum. Year to date, Sats has gained more than a third to close at $3.74 on Nov 12.
Similarly, CGSI’s Tay Wee Kuang and Lim Siew Khee have kept their “add” call and a $4.40 target price. Citing the management, they note that Sats is aiming for $6 billion in revenue come FY2029, a 22% ebitda margin and a 10% ebit margin for its gateway services segment. “Based on our FY2025 to FY2027 estimates, we believe Sats is on track to achieve its FY2029 targets, although its overall revenue target of $8 billion for FY2029 requires an EPS CAGR of 9.2% over FY2024 to FY2029, ahead of our three-year EPS CAGR of 7.2%,” state Tay and Lim.
