To The Moon

SIA Earnings Preview: Can the Carrier Navigate Out of the Profit Pitfall?

$SIA(C6L.SI)$   is scheduled to release its second-quarter Fiscal Year (FY) 2026 results on November 13, 2025. This report arrives under intense scrutiny following the dramatic stock market reaction to the prior quarter's performance. Nevertheless, SIA has still achieved gains of over 7% since the beginning of the year.

Core Financial Indicators

According to Bloomberg, consensus estimates for Q2 project steady revenue growth, forecast at S$4.96 billion (+3.70% year-on-year). This top-line performance reflects sustained, above-market demand for air travel across the group's network.

However, beneath the veneer of operational strength lies a deep profitability paradox. The consensus Earnings Per Share (EPS) forecast stands at S$0.059 (-37.55% year-on-year). Near-term gains are expected to remain limited until management provides clear visibility on mitigating these profitability challenges.

Sustained Demand Resilience and Controlled Capacity

The operational updates provided throughout the second quarter indicate that the fundamental demand for air travel remains robust across the SIA Group network.

In August 2025, passenger traffic (RPK) expanded by 5.4% year-on-year, significantly outpacing the 2.7% growth in capacity (ASK). This strong trend continued into September 2025, where passenger traffic rose 3.7% year-on-year against a more contained 2.5% increase in capacity. This differential growth rate led to the maintenance of exceptionally high Passenger Load Factors (PLF).

The Group's overall PLF reached 88.0% in August 2025, marking a 2.3 percentage point improvement, and remained strong at 87.1% in September 2025, up 1.0 percentage point from the previous year. The low-cost subsidiary, Scoot, posted an even stronger PLF of 90.1% in September.

The success in achieving these high load factors proves that market demand remains solid, underpinned by strong summer travel seasons. However, market experts caution that maintaining such high load factors often requires active revenue management, including price stimulation. Analysts point out that SIA has been "effective in stimulating traffic through pricing," illustrated by the large-scale discounted ticket sales launched in October 2025 (over 380,000 tickets). This strategy, while ensuring full planes, confirms the persistence of pressure on average realized prices per seat, or yields.

Cargo Segment Moderation: A Return to Pre-Pandemic Norms

The cargo segment, which served as a crucial profitability cushion during the pandemic era, shows continued moderation. This reflects the global normalization of trade patterns, increased passenger capacity (which carries belly freight), and the easing of previous sea freight disruptions.

In July 2025, the cargo load factor (CLF) already showed signs of moderation, declining by 0.3 percentage point to 57.1%. In September 2025, overall cargo loads decreased by 3.8% year-on-year, while capacity contracted slightly by 0.8%. This weaker performance was partly attributed to external factors, such as reduced freighter activity in East Asia due to Typhoon Ragasa. Consequently, the cargo load factor (CLF) declined further by 1.8 percentage points to 56.2% in September.

The contraction in cargo volume and load factors is expected to translate into lower cargo revenue and yield deterioration. The reduced profitability from the cargo segment means that the main passenger segment must bear a proportionally greater share of the group's fixed costs, intensifying the required performance level for passenger yields (RASK) to maintain operating profit margins.

The Yield-Cost Squeeze: Dissecting Margin Pressure

1. Yield Erosion: The Primary Operational Headwind

The most challenging operational headwind for Q2 is the persistent downward pressure on passenger yields. While SIA maintains exceptionally high load factors, this is increasingly achieved through competitive pricing necessitated by industry-wide capacity growth.

This margin compression is evident across the group, including the crucial low-cost segment. Scoot reported its lowest yield in 12 quarters (S$0.061 per kilometre) and faced a worrying breakeven load factor (BLF) of 98.4%, far exceeding its already strong 90.1% achieved load factor in September .

2. Non-Fuel Cost Escalation

Sustained global inflationary pressures and expansion activities are driving up non-fuel operating costs, thereby compounding the margin pressure. Looking into Q2, these pressures are unlikely to abate entirely. Labor costs, a major component of non-fuel expense, continue to be subject to inflationary trends. Furthermore, strategic expansion investments, such as the gestation costs associated with SIA Engineering's new Base Maintenance Malaysia (BMM) venture and Cambodian line maintenance operations, will continue to exert a near-term drag on non-fuel unit costs, even though these investments are viewed as vital for long-term growth in the robust Maintenance, Repair, and Overhaul (MRO) market. For SIA to stabilize its operating profit, management must demonstrate moderation in the Cost per Available Seat-Kilometre (CASK), particularly the non-fuel component, to offset the expected decline in RASK.

3. Fuel Hedging: Limiting Savings in a Volatile Market

Fuel cost management, especially the hedging strategy, is another primary concern following the Q1 results. The hedging approach provided protection against price spikes but curtailed the savings derived from lower global oil prices.

While jet fuel prices have shown fluctuations, the true benefit realized by SIA depends on its realized average fuel price post-hedging. If the prior hedges locked in higher prices that are unfavorable compared to the Q2 spot market, the airline will again fail to capture the full benefit of lower fuel costs.

Quantification of Associate Drag: The S$122 Million Question

The share of losses from associated companies was the decisive non-operational factor in the Q1 profit collapse. This drag, driven primarily by Air India, amounted to approximately S$122 million, directly causing the 58.8% plunge in SIA's net profit.

Analysts widely anticipate that a similarly high, or potentially greater, level of loss contribution from the associate will be recognized in Q2. UOB Kay Hian explicitly expects the full-year core net profit to reflect the "full-year impact of Air India's negative contribution". The precise magnitude of this Q2 loss—whether it is contained below S$122 million or accelerates beyond it—will be the most significant single determinant of whether SIA meets or misses the heavily discounted consensus net profit forecast.

Analysts Ratings and Tech Signals

Analyst sentiment remains cautious. The 12-month Bloomberg consensus target price is SGD 6.32, implying negative return potential (-5.1%) versus the latest share price. Still, an earnings beat could deliver a shot in the arm for sentiment.

Technically, SIA shares have been range-bound since last quarter's post-earnings plunge—this week's report may prove the catalyst for a breakout.

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