To The Moon

$SIA(C6L.SI)$

Turbulence at 30,000 Feet: Can the Flag Carrier Regain Altitude?

Singapore Airlines (SGX: C6L), widely admired for its premium in-flight service and long-haul excellence, recently reported a sharp drop in net profit for the first quarter of FY2025. The headline-grabbing decline—more than 50% year-on-year—has sparked concern among investors just as macroeconomic headwinds, rising competition, and geopolitical risks begin to buffet the global aviation industry once more.

Yet beneath the surface of falling earnings, Singapore Airlines remains one of the strongest balance sheets in the global airline sector, with healthy liquidity, disciplined cost management, and a diversified revenue base that includes Scoot and a lucrative cargo business. The key question for long-term investors: does the recent drop below SGD 7 signal a rare buying opportunity, or is it merely the start of a longer descent?

Let’s examine the full picture, from earnings pressure and valuation metrics to growth drivers, dividend policy, and investor sentiment ahead of August developments.

Performance Overview and Market Feedback

Singapore Airlines reported net profit for Q1 FY2025 at SGD 734 million, down sharply from SGD 1.2 billion in the same period last year. The decline was driven by multiple factors: a normalizing cargo market, higher fuel costs, and increased operating expenses stemming from a stronger Singapore dollar and rising labor costs.

Passenger load factors remained healthy at 87.2%, supported by robust demand for leisure and VFR (visiting friends and relatives) travel across Asia-Pacific and Europe. Capacity reached 94% of pre-pandemic levels, and forward bookings remain resilient, especially into Q2 and Q3 during peak travel seasons.

Despite the earnings slump, Singapore Airlines still posted revenue of SGD 4.7 billion, reflecting a 5.5% year-over-year increase, supported by higher passenger yields and strong demand on premium long-haul routes. However, cargo revenue fell significantly as global freight rates continued to normalize from 2022 highs.

In response to the earnings report, the stock dropped over 7% intraday, briefly touching SGD 6.95—a level last seen in mid-2023. Analyst sentiment has turned cautious, with several brokerage houses revising their target prices slightly downward to the SGD 7.00–7.50 range.

Strategic Headwinds and Competitive Pressures

Singapore Airlines faces mounting cost pressures, even as travel demand remains robust. Rising jet fuel prices—now hovering above USD 100 per barrel—and inflationary pressures on staffing and maintenance are compressing margins. In addition, the airline has resumed capital expenditures on new aircraft, including Airbus A350s and Boeing 787s, to replace older jets and reduce fuel burn.

Meanwhile, regional competitors such as Emirates, Qatar Airways, Cathay Pacific, and ANA have ramped up capacity and restored service levels, eating into premium pricing power on international routes.

Domestically, Scoot has returned to full operations, but ultra-low-cost carriers (ULCCs) like AirAsia and Jetstar continue to price aggressively, creating yield compression in Southeast Asia’s short-haul segment. Singapore Airlines’ premium-centric model offers insulation, but not immunity, from fare pressure.

The cargo segment, which provided a major profit cushion during the pandemic, is no longer a tailwind. Volumes are stabilizing, and rates have returned to 2019 levels as supply chains normalize and belly-hold capacity returns across the globe.

Underlying Strengths Amidst the Weakness

Despite near-term headwinds, Singapore Airlines remains in a better financial position than most of its global peers. Its net cash position, robust liquidity buffer, and minimal gearing stand in stark contrast to highly leveraged legacy carriers in the U.S. and Europe.

The Group’s fleet renewal strategy continues to focus on fuel efficiency and carbon emission reduction—critical metrics in an ESG-conscious investment environment. By FY2026, over 60% of its wide-body fleet will comprise newer-generation aircraft, allowing for lower operating costs and higher route flexibility.

Moreover, Singapore Airlines’ KrisFlyer loyalty program has become an increasingly valuable digital asset. With over 6 million members globally, KrisFlyer generates data insights, cross-sell opportunities, and stickiness that could eventually become a more monetizable stream via partnerships and financial services.

The joint venture with Tata Group in India via Vistara and the merger with Air India (subject to final regulatory approval) also provides long-term growth visibility in one of the world’s fastest-growing aviation markets.

Dividend Policy and Capital Allocation

One key reason investors have long favored Singapore Airlines is its historically reliable dividend. However, with profit falling sharply, investors are rightly asking whether payouts are at risk.

The airline declared a final dividend of SGD 0.28 per share for FY2024, translating into a yield of roughly 4% at current prices. While the payout ratio is expected to rise due to lower earnings, the airline has ample room to support dividends through its balance sheet strength.

Management has signaled its intention to maintain capital discipline while continuing modest shareholder returns—especially as capex requirements rise due to new aircraft deliveries.

Share buybacks remain unlikely, as management prefers reinvesting in fleet renewal, digital innovation, and international partnerships. However, should share prices fall materially below SGD 6.80, buybacks may be reconsidered as a tool for value support.

Valuation Metrics and Peer Comparison

At SGD 7.00, Singapore Airlines trades at approximately:

• 9.5x forward earnings, assuming FY2025 EPS of SGD 0.74

• 0.85x book value, based on equity of SGD 8.3 billion

• 4.1% dividend yield

Compared to global peers:

• Emirates (private): higher margins, but not listed

• Cathay Pacific: trades at ~1.2x book, no dividend

• Delta Airlines: ~10x forward P/E, heavily leveraged

• Lufthansa: ~7x forward P/E, but lower load factors

SIA’s valuation is not demanding, especially when accounting for its fortress balance sheet and strong premium brand. However, upside will be limited if earnings continue to decline and cargo fails to rebound.

Investors should also factor in forex risk, especially with the Singapore dollar likely to remain strong in the face of global currency weakness. This may dampen earnings translation from international operations.

Key Investment Highlights

1. Brand Premium and Load Factor Advantage Singapore Airlines consistently scores among the top three global carriers in terms of service quality, net promoter score (NPS), and customer satisfaction. These brand attributes translate into pricing power, loyalty, and resilience in economic downturns.

2. Strong Balance Sheet with Net Cash Position The company ended Q1 FY2025 with over SGD 12 billion in cash and short-term investments, allowing it to fund operations and capex without raising debt—unlike many global carriers.

3. Emerging Market Exposure via Vistara & Scoot The carrier’s strategic exposure to India (via Vistara/Air India) and Southeast Asia (via Scoot) provides long-term demographic and macro tailwinds, especially as air travel penetration remains below OECD norms.

4. ESG and Sustainability Compliance With aviation under increasing scrutiny from regulators and investors alike, SIA’s investments in SAF (Sustainable Aviation Fuel) partnerships and new-generation aircraft place it ahead of regulatory curves.

5. Digital Transformation and KrisFlyer Ecosystem The expanding Kris+ and KrisFlyer platforms offer opportunities for cross-sell, data analytics, and partnerships with fintech, hospitality, and retail partners.

Verdict: Buy, Sell or Hold in August 2025?

At current levels near SGD 7.00, the stock appears fairly valued in the near term but potentially undervalued for long-term investors seeking quality exposure to aviation recovery. The drop in profit is concerning, but largely cyclical rather than structural.

That said, without a rebound in cargo profitability or a surprise surge in yields, upside over the next 6–12 months appears capped. Management has guided for flat-to-modest growth in FY2025, and cost inflation remains a persistent headwind.

Verdict: Hold

• Entry Point to Watch: SGD 6.60–6.80 (historical support zone)

• Upside Target (12–18 months): SGD 8.00–8.20

• Downside Risk: If earnings fall further, fair value could drop toward SGD 6.30

Short-term traders may consider trimming exposure ahead of further earnings volatility, while long-term investors can continue holding for dividends and capital preservation.

Conclusion: Navigating the Skies Ahead

Singapore Airlines is not immune to the global aviation cycle, but it is arguably the most well-prepared among major international carriers to weather turbulence. The sharp drop in quarterly profit is a warning sign—but not a death knell—for the stock.

With a solid balance sheet, strategic growth options in Asia, and strong passenger demand, the airline remains a premium player in a commoditized industry. While further downside can’t be ruled out, current valuations reflect much of the near-term risk.

For patient investors focused on quality, yield, and long-term structural growth, Singapore Airlines under SGD 7.00 presents an intriguing accumulation zone—not a panic exit point. Just fasten your seatbelt for some additional bumps along the way.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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