Broker: OCBC Investment Research
Date of Report: 29 July 2025

Singapore Airlines Faces Headwinds Despite Record Travel Demand: In-Depth Analysis and Outlook

Singapore Airlines Overview: Navigating Market Challenges and Opportunities

Singapore Airlines (SIA), Singapore’s flagship carrier, has reported a nuanced performance for the first quarter of FY26, reflecting both robust air travel demand and emerging headwinds from associate losses and moderating yields. The company, which recently celebrated a record FY25 on the back of strong passenger traffic and a one-off accounting gain from the Vistara disposal, now finds itself at a critical juncture as industry dynamics shift.

Key Takeaways from Q1 FY26 Performance

• Revenue Growth: Q1 FY26 revenue rose 1.5% year-on-year to SGD 4.8 billion, driven by resilient air travel demand and relatively steady passenger yields.
• PATMI Decline: Profit after tax and minority interests (PATMI) fell sharply by 58.8% YoY to SGD 186 million, primarily due to higher-than-expected losses from associates, especially following the full consolidation of Air India’s performance post the Vistara-Air India merger.
• Fair Value Revision: The fair value estimate for SIA shares has been revised upwards to SGD 7.10, with the recommendation maintained at “HOLD.”

Investment Thesis: End of an Exceptional Run?

While SIA’s brand, service quality, and product innovation continue to be its core strengths, the airline is facing the reality of moderating passenger yields. As more airlines restore capacity, especially across Asia, competitive pressures are expected to intensify. Tariff uncertainties and global economic concerns further cloud the demand outlook. Despite these challenges, SIA’s long-term value proposition remains intact, but near-term normalization is anticipated.

Detailed Financial and Operational Analysis

Quarterly Results: Revenue vs. Profitability

Segment Performance and Operational Highlights

• Passenger Flown Revenue: Up 0.9% YoY to SGD 3.9 billion, with traffic growth of 4.1% outpacing capacity expansion of 3.3%. Passenger load factor improved to 87.6%, despite a 2.9% dip in yields.
• Cargo Flown Revenue: Dropped 1.9% YoY to SGD 530.5 million due to a 0.8 ppt decline in cargo load factor (to 56.9%) and a 4.4% decrease in cargo yields.
• Expenditure: Outpaced revenue growth, rising 3.2% YoY to SGD 4.4 billion, largely on an 8.5% increase in non-fuel costs from capacity ramp-up and inflation. Net fuel costs improved by 7.9% YoY, aided by lower prices and despite a net fuel hedging loss.

Profitability and Margin Trends

• Operating profit fell 13.8% YoY to SGD 405 million.
• PATMI was significantly lower, largely due to SGD 121.6 million in share of losses from associates, especially Air India.
• Net interest expense increased compared to the prior year.

Updated Financial Projections and Valuation

• EBIT Margin (%): 8.7 (FY25), 6.0 (FY26E), 5.7 (FY27E)
• ROE (%): 17.4 (FY25), 4.3 (FY26E), 3.8 (FY27E)
• Dividend Yield (%): 5.3 (FY25), 2.4 (FY26E), 2.1 (FY27E)

Valuation Comparisons: Peer Airline Analysis

ESG Performance: Environmental, Social, and Governance Insights

• High-Risk Sector: SIA operates in a sector identified as high risk for carbon emissions and intensity.
• Carbon Intensity: The airline’s carbon intensity is above the industry average, though it has declined faster than peers from 2021 to 2022 due to investments in a younger fleet and increased use of sustainable aviation fuel (SAF).
• Fleet Modernization: Two-thirds of SIA’s operating fleet now comprises new-generation aircraft, with ongoing efforts to optimize operational procedures and reduce fuel consumption.
• Net Zero Commitment: SIA aims to achieve net zero carbon emissions by 2050, though its 2019-2021 average emissions intensity remained above industry norms.
• Social and Governance: SIA outperforms global peers in areas such as employee compensation, customer satisfaction, and on-time performance. The airline is also regarded highly for its governance standards, data security practices, and anti-corruption policies.

Key Catalysts and Risks Ahead

Potential Catalysts

• Faster-than-expected recovery and capacity ramp-up, especially in Asia-Pacific.
• Rapid network expansion to capture pent-up demand.
• Favorable movements in oil prices.

Investment Risks

• Prolonged weakness in cargo demand.
• Escalating competition as airlines restore international capacity.
• Sharp moderation in air travel demand and average fares.

Company Profile and Strategic Positioning

Founded in 1947, Singapore Airlines has evolved from a small regional player into a global airline group operating a fleet of over 180 aircraft. SIA’s three primary business segments are:

• Full-Service Carrier: Passenger and cargo services under the Singapore Airlines brand.
• Low-Cost Carrier: Passenger services under Scoot.
• Engineering Services: Aircraft cabin equipment manufacturing, maintenance, and ground handling.

With a strategic multi-hub approach, SIA is present in India (through Air India) and Thailand (via NokScoot), broadening its market reach and diversifying traffic flows.

Historical Financials: Five-Year Performance Snapshot

Conclusion: Hold Rating Maintained Amid Normalization Phase

Despite delivering record results in FY25, SIA’s latest quarterly report highlights the normalization of industry conditions and the challenges posed by associate losses and moderating yields. Investors should monitor the company’s ability to adapt to evolving market dynamics, capitalize on network opportunities, and execute on sustainability commitments. The fair value estimate has been raised to SGD 7.10, with a continued “HOLD” stance, reflecting a balanced outlook between near-term risks and long-term brand strength.

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