SIA and the 3 stocks that offer potential exposure to the aviation sector recovery

THE world is reopening, and airlines are finally getting that long-awaited boost in air travel demand as well as the accompanying mending of their bruised financials.

In Singapore, passenger traffic reached 400,000 or 31 per cent of pre-Covid levels in the week ending Apr 17 - up from 18 per cent a month ago - after the city-state reopened its borders to all fully vaccinated travellers from April.

The number of passenger flights also saw an increase to 38 per cent of pre-Covid levels in that week, from 29 per cent a month ago.

National carrier Singapore Airlines understandably could capture a decent share from the higher traffic, and indeed it has already begun to report better numbers. It carried some 893,000 passengers in March, up from 544,600 in February 2022. Group passenger capacity reached 51 per cent of pre-Covid levels in March.

Besides Singapore Airlines, which other companies could be on investors' radars? Several other counters in the region look attractive based on fundamentals or recent developments.

Korean Air Lines has announced it will add hundreds of international flights per week from May, including another 100 weekly flights to the United States, Europe, Singapore and Thailand, with 100 more weekly flights to be added in June and 300 more in July.

The South Korean government has said it is considering abolishing the curbs implemented during the pandemic to stem infections, including relaxing the requirement of mask-wearing outdoors. Such a decision could bode well for Korean Air Lines, which had managed to become profitable in 2021 even with most pandemic-related restrictions still in place.

Its cargo segment, like that of most competitors, furnished the airline with financial support during the pandemic, with a 57.5 per cent year-on-year jump in segmental turnover, according to the estimated financial results Korean Air Lines has published.

Its liability-to-equity ratio dipped drastically to 275 per cent from 634 per cent, the latest financial results showed.

Investors should watch out for elevated fuel prices, though, which might exert downward pressure on Korean Air Lines' profitability going forward, as it already reported an 87 per cent spike in fuel prices for the fourth quarter of FY2021 to December.

China Eastern Airlines is another player to watch. Although it was still loss-making in 2021, Bloomberg data showed the carrier clocked a 14.3 per cent improvement in revenue for the last 12 months.

Although China is persisting with its zero-Covid strategy, and this has weighed on Chinese carriers in terms of international traffic and domestic volume, the vast domestic China travel market has the potential to rebound quickly. This underpin the Chinese carrier's performance once the current situation comes under control.

Hence, Chinese Eastern Airlines would furnish investors with an opportunity to diversify geographically and also leverage strong Chinese domestic travel demand as the country is still largely closed to international players.

The company does have another short-term challenge: handling the possible reputational damage and drop in confidence arising from the plane crash that claimed over 100 casualties in late March.

Lessors are also a proxy for investors who want to buy into the aviation recovery, outside of the usual airline shares. BOC Aviation has shown resilience since the aviation world was gripped by the pandemic.

BOC Aviation, listed in Hong Kong and a subsidiary of Bank of China, reported a 10 per cent rise in net profit of US$561 million in 2021 on a 6 per cent increase in revenue to US$2.2 billion. The company's board has proposed a dividend of US$0.1733 per share subject to shareholders' approval and had earlier approved an interim dividend of US$0.28311 per share.

Although it reported that 18 aircraft it formerly leased to airlines in Russia are now being recovered in compliance with sanctions following Russia's invasion of Ukraine, BOC Aviation said the net book value of the owned aircraft net of all cash collateral was US$589 million or 2.5 per cent of its total assets.

READ MORE: Flight bookings show pent-up demand, bodes well for Singapore's air traffic target