Singapore Air low-yield 'bugbear' to gain from weaker currency

[SINGAPORE] Singapore Airlines Ltd, Asia's second-largest international carrier, will benefit from the decision by the city-state's central bank to lower the local currency's appreciation slope as a cheaper Singapore dollar will support inbound tourist arrivals, Morgan Stanley said.

About 40 per cent of the airline's revenue is denominated in US dollars, Australian dollars, the yen, the pound and the euro, likely helping to lift yields for the company, Morgan Stanley analysts led by Daniel Lau and Edward Xu wrote in a note Thursday.

The Monetary Authority of Singapore moved to a neutral policy of zero per cent appreciation in the exchange rate, causing the local dollar to decline and dragging down currencies across Asia Pacific.

The surprise announcement came two days after the International Monetary Fund warned of the risk of negative shocks to the global economy.

"A weaker Singapore dollar is likely to lift yields for Singapore Air, which has been a bugbear amid fuel benefit pass- through," the analysts wrote, reiterating the carrier as their top pick in the sector.

Singapore Air shares gained 0.6 per cent to S$11.47 as of 1:25 pm in the city, helping advance the gains this year to 2.4 per cent.

BLOOMBERG