Singapore Airlines Miss Earnings Expectations in Q3 2024. Should Investors Sell?

February 22, 2024

Singapore Airlines

Singapore Airlines Ltd (SGX: C6L), known for its top-notch service and flights around the world, is in the spotlight. Despite doing well in some areas, its latest Q3 2024 earnings did not meet expectations.

This has led to a decline in its share price today, falling by about 9.5% as analysts downgrade their ratings for the airline company.

With such disappointing news, is SIA still a good investment opportunity for investors? Let’s break down the reasons why someone might want to invest in SIA and the possible risks or downsides that come with it.

Reasons to Invest

  1. Strong Brand and Market Position

Singapore Airlines is renowned for its exceptional service quality, operational reliability, and innovative offerings. Its strong brand reputation places it in a favourable position to capitalize on the global travel recovery post-pandemic.

  1. Robust Forward Bookings

SIA’s forward bookings remain strong, buoyed by upcoming travel seasons such as the March school holidays and Easter holidays. This indicates sustained demand for travel, which is crucial for revenue growth.

  1. Capacity Recovery

The airline expects its capacity to fully recover to pre-pandemic levels in FY2025, demonstrating a positive trajectory in restoring operations and capitalizing on market demand.

  1. Diverse Revenue Streams

Beyond traditional passenger and cargo services, SIA is expanding its KrisFlyer ecosphere and codeshare agreements, enhancing its ability to generate revenue through various channels.

  1. Attractive Dividend Potential

Despite a slight reduction in the expected dividend, SIA still projects a competitive yield, providing an appealing incentive for income-seeking investors.

Following the selloff in its share price today, SIA is trading at a forward dividend yield of 5.2%.

Risks to Consider

  1. Pricing and Cost Pressures

SIA faces challenges from declining passenger yields and increasing operational costs. Such pressures can impact profitability, especially in a competitive landscape where other airlines are also scaling up their operations.

  1. Cargo Business Uncertainties

The cargo segment, while profitable, showed modest growth compared to industry benchmarks. With the potential for softer air freight volumes, this segment may not contribute as expected to SIA’s bottom line.

  1. Economic and Geopolitical Risks

Global economic uncertainty, including recessionary pressures and geopolitical tensions, can adversely affect discretionary travel spending. High oil prices and inflationary pressures also pose significant risks to operating costs.

  1. Competition and Market Share

As regional airlines overcome operational challenges and increase capacity, SIA could face stiffer competition, affecting its market share and pricing power. 

  1. Technical and Market Risks

The share price volatility and technical indicators suggest that while there’s potential for recovery to resistance levels, investors should be wary of market fluctuations and macroeconomic factors affecting stock performance.

Tourism recovery continues to benefit SIA, but upside potential is not as exciting anymore 

Investing in SIA presents a balanced mix of growth opportunities and inherent risks. The airline’s strong brand, strategic capacity expansion and robust bookings indicate the potential for growth as the global travel industry recovers. However, the upside potential is not as exciting as competition intensified with increased capacity from other competitors in the region. Investors must carefully weigh the impact of competitive pressures, operational costs, and macroeconomic uncertainties on profitability and share performance. While SIA continues to hold long-term value, near-term volatility and external pressures could affect its performance, making it essential for investors to stay informed and adapt their strategies accordingly.

Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of the company mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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