Broker: UOB Kay Hian
Date of Report: Tuesday, 16 September 2025
SIA Faces Turbulence: Singapore Airlines’ Earnings Set to Dive Amid Air India Losses and Yield Pressures

Singapore Airlines (SIA): Navigating Post-Pandemic Recovery and New Headwinds

Singapore Airlines (SIA), Singapore’s renowned flag carrier, continues to demonstrate strong operational resilience in a challenging environment. While demand for air travel remains robust and operational metrics have largely returned to pre-pandemic levels, significant threats loom on the horizon—most notably from its associate stake in Air India and moderating yields. UOB Kay Hian maintains a SELL recommendation on SIA, with a revised target price of S$6.05, citing declining earnings and yield pressures.

Operational Highlights: Strong Passenger Demand, Cargo Challenges

SIA’s August 2025 operational data showed resilience, with both passenger and cargo operations posting growth versus last year. However, the pace of cargo recovery lagged behind, and the carrier’s network remains slightly smaller than pre-pandemic.

Key Observations

• Pax load factor improved to 88.0% in Aug 25, topping pre-pandemic levels by 1.6ppt.
• SIA and Scoot carried a combined 3.6 million passengers in August, a 9.4% YoY surge.
• Cargo load factor fell to 55.2%, trailing pre-pandemic levels by 1.9ppt, as frontloading effects faded.
• Passenger network covers 129 destinations, still below the 137 destinations pre-pandemic.

Jet Fuel Trends: Marginal Cost Pressures

Jet fuel spot prices rebounded quarter-on-quarter, climbing from US\$80 per barrel in May 25 to close to US\$90 in recent months. SIA’s average unhedged jet fuel cost is expected to be 5-6% higher QoQ, but still 8-9% lower YoY, providing some cushion to operating costs.

Air India: The Persistent Drag on Profits

SIA’s 25% associate stake in Air India, acquired in November 2024, continues to weigh heavily on its financial results. In 1QFY26, Air India was a major contributor to a 59% YoY drop in SIA’s net profit, which fell to S\$186 million. The seasonal weakness in India’s air travel market due to monsoon conditions, combined with potential provisions for the Air India Flight 171 accident in June 2025, is expected to keep Air India’s losses high in the upcoming quarter.

Financial Forecasts: Significant Earnings Decline Expected

UOB Kay Hian projects SIA’s net profit for 2QFY26 to fall sharply to a range of S\$100-200 million, with a midpoint of S\$150 million—representing a 48% YoY drop from the S\$290 million earned in 2QFY25. While operating profits are expected to grow 10% YoY on higher pax and cargo loads and lower jet fuel prices, these gains will be offset by Air India’s drag and lower interest income due to declining deposit rates.

Balance Sheet and Cash Flow: Growing Debt, Pressured Cash Reserves

SIA’s balance sheet reflects significant capital expenditure plans and rising debt levels over the forecast period. Net debt to equity is projected to climb from -6.9% in FY25 to 37.5% by FY28, while cash reserves are anticipated to decline steadily.

Valuation: Persistent De-Rating Risks and Lower Dividend Outlook

• Current share price: S\$6.51
• Target price: S\$6.05 (-7.1% downside)
• Valuation pegged at 1.17x FY26F P/B, 0.5 SD above historical mean
• FY26 dividend yield expected to fall to 3.5%, even at a 70% payout ratio

Earnings forecasts for FY26-FY28 have been raised marginally by 2.3-2.5% due to fine-tuning of passenger and cargo projections and updated jet fuel prices. Nevertheless, FY26 net profit is expected to plunge 36% from FY25 core earnings.

Key Risks and Share Price Catalysts

• Macroeconomic weakness may dampen air travel and cargo demand
• Stiff competition could further compress yields
• Prolonged Air India losses remain a critical drag
• De-rating catalysts: YoY declining earnings performance

Profitability, Growth, and Leverage: Outlook to FY28

Shareholder Structure and Market Performance

• Shares issued: 3,116.7 million
• Market cap: S\$20.3 billion
• Temasek Holdings remains the largest shareholder at 53.5%
• 52-week price range: S\$7.63 (high) / S\$5.90 (low)
• Recent price trends show mild volatility and a -7.1% implied downside to the target price

Conclusion: SIA’s Path Ahead Remains Challenging

Despite a robust operational recovery, Singapore Airlines faces mounting headwinds from Air India’s persistent losses, moderating yields, and rising leverage. The company’s earnings outlook remains soft, with dividend yields set to decline and valuation risks skewed to the downside. Investors are advised to remain cautious, as de-rating catalysts and downside risks continue to overshadow the carrier’s operational strengths and global reputation.

Disclosures and Analyst Certification

• This report was prepared by UOB Kay Hian Private Limited, a licensed capital markets services provider and exempt financial adviser in Singapore.
• The analyst certifies that this article reflects their independent, personal views and was not influenced by any business relationships or compensation tied to the subject company.
• For country-specific distribution restrictions, legal disclaimers, and regulatory notes, please refer to broker guidelines.