Singapore Airlines operationally ready to ride on mainland China’s reopening

SINGAPORE Airlines (SIA) is pursuing a “first off the blocks” strategy as it eyes more spoils from the global reopening, including mainland China’s eventual return to the skies.

Chief executive officer Goh Choon Phong said at an earnings briefing on Monday (Nov 7) that the mainboard-listed airline group has been gearing up for the recovery of air travel while waiting for the borders to reopen, including keeping its resources operationally ready and injecting capacity ahead of demand.

Despite it expecting to operate at only 80 per cent of pre-pandemic levels by December, for example, almost all the group’s cabin crew and pilots will be back in active service at that time.

Hence, it is able to scale up further to seize the pent-up demand from mainland China’s re-opening, even if that should happen in the near term, said Lee Lik Hsin, SIA’s executive vice-president for commercial at the briefing. SIA also learned to be nimble during the pandemic and is able to switch around its network to ride on the reopening of the world’s most populated country and second-largest economy.

Rumours of China soon ending its zero-Covid policy, which has largely kept its borders shut and restrictive measures in place, have been swirling recently.

SIA has recently been allowed by the Chinese government to add flights to the country, said Lee. Despite that, the number of flights to the East Asian nation is still “a far cry” from pre-Covid levels. Due to the constrained supply, however, the Chinese routes are now doing “very well” for the Singapore carrier group.

SIA reported high passenger yields and load factors in general when it posted record-high quarterly and half-year operating profits last Friday. Net profit for the quarter and half-year to September stood at S$556.5 million and S$926.9 million respectively, on a quarterly top line of S$4.5 billion and a half-yearly top line of S$8.4 billion.

SIA noticed business travel demand recovery in the second quarter, after lagging behind leisure travel the quarter before, Lee said.

It has declared an interim dividend of S$0.10 a share for payment on Dec 22. However, it has no stated dividend policy, noted the CEO in response to a query.

DBS, in a note to clients last Friday, wrote that SIA’s second-quarter earnings “surpassed expectations”, while its half-year net profit was at 60 per cent of the research house’s forecast for the financial year.

Despite it having flagged the carrier’s potential resumption of dividend payment, DBS said it was still “a surprise to the market, and should boost sentiment on the stock”. 

SIA is tempering market expectations, however, as it does not expect passenger yield, a revenue metric, to stay elevated at levels in 2022, as rivals catch up in ramping up capacity. Lee said: “2022 is a unique year, (with a) lack of supply and pent-up demand.”

Goh, who attended the briefing virtually as he was recovering from Covid, said it is not certain what the impact of rising interest rates and a stronger US dollar would be on passenger and freight demand.  However, where capital expenditure priced in US dollars is concerned, there is no impact at the moment, assured executive vice-president for finance and strategy Tan Kai Ping.

The counter posted a gain of 1.3 per cent at S$5.41 when the market closed on Monday.