SIA’s Q1 Profit Soars on Revenge Travel; We Think Tailwinds May Ease but Mainly in Fiscal 2024

Singapore Airlines’, or SIA’s, robust first-quarter fiscal 2023 (ending June) net profit of SGD 370 million surpassed expectations as revenge travel and more limited capacity from competitors helped lift operating margin to 14%. While revenue was generally within our expectation, costs lagged more than we assumed. SIA continues to benefit from remnant fuel cost hedges but it’s mainly the non-fuel expenses that are on the low-end of our estimates. However, we think non-fuel costs will catch up as pandemic pay cuts are reversed through the rest of fiscal 2023. We raise both our passenger and cargo yield assumptions and finetune some cost estimates leading to a 54% increase to our fiscal 2023 net profit forecast to SGD 732 million. However, our fiscal 2024 earnings forecast is little changed. Our Uncertainty Rating is lowered to Medium from Very High to reflect reduced financial risks and a more stable profit outlook.