Cathay Pacific (293:HK) Fair value: HK$14
Cathay Pacific (293:HK) Rating: Outperform
Singapore Airlines Fair value: S$12
Singapore Airlines (SIA:SP) Rating: Outperform
18th January 2018, Asia Pacific – Both Cathay Pacific and Singapore Airlines reported strong operating performance for the month of December 2017. Comparing the two, Singapore Airlines Group passenger traffic and load factor grew faster than Cathay Pacific’s, outperforming primarily on South West Pacific and European routes in Dec 2017, helped by Scoot’s strong growth. By not investing in a separate low-cost carrier, Cathay Pacific is missing out on the budget travel market’s growth in our view. Cathay Pacific, on the other hand, achieved much stronger cargo traffic and load factor performance, reflecting Cathay’s geographical advantage with its cargo catchment area in the Greater China region as well as its broader network. Cathay Pacific management’s commentary was more upbeat than Singapore Airlines’, implying potential upside on yields in its upcoming financial results.
SINGAPORE AIRLINES GROUP’S PASSENGER BUSINESS PERFORMANCE WAS STRONGER THAN CATHAY PACIFIC’S, HELPED BY SCOOT
Singapore Airlines Group’s (SIA:SP) passenger traffic grew 5% y/y in December 2017, ahead of Cathay Pacific’s (293:HK) 4% growth. 100%-owned subsidiaries SilkAir and Scoot’s passenger traffic rose 12% and 10% y/y in December while Singapore Airlines’ own passenger traffic rose 3% y/y. By not investing in a separate low-cost carrier, Cathay Pacific is missing out on the budget travel market’s growth in our view.
Both carriers achieved the same high passenger load factor of 85%. The difference was that this represented a 2ppts y/y improvement for Singapore Airlines Group but steady y/y performance for Cathay Pacific.
Cathay Pacific’s commentary was more upbeat than Singapore Airlines’, highlighting strong premium and leisure travel demand. This could imply stronger than expected yields in Cathay Pacific’s upcoming financial results.
Chart: Passenger Traffic Growth (Dec 2017)
SINGAPORE AIRLINES DID BETTER ON SOUTH WEST PACIFIC AND EUROPEAN ROUTES COMPARED TO CATHAY PACIFIC WHICH DID BETTER ON INDIAN SUBCONTINENT ROUTES
On South West Pacific routes, Singapore Airlines’ passenger load factor rose 3ppts y/y to 88% while Cathay Pacific’s South West Pacific & South Africa’s loads weakened 5ppts y/y to 86%, mainly due to its aggressive capacity growth of 13%. On European routes, Singapore Airlines’ passenger load factor improved 4ppts y/y to 82% while Cathay Pacific’s loads fell 2ppts y/y but were still high at 85% in Dec 2017.
Cathay Pacific did better for the India, Middle East, Pakistan & Sri Lanka route region where its passenger load factor improved 5ppts y/y to 85%, helped by its 3% capacity cut in Dec 2017. In contrast, Singapore Airlines’ West Asia & Africa’s loads held steady y/y at 83%.
The two carriers’ load factor performance were comparable in the other major route regions. Passenger load factors improved by 2ppts and 1ppt y/y for to 83% and 86% on North American routes for Singapore Airlines and Cathay Pacific in Dec 2017. The two carriers’ load factors on North and South East Asia routes were generally steady y/y in December 2017.
CATHAY PACIFIC’S CARGO BUSINESS PERFORMANCE WAS MUCH STRONGER THAN SINGAPORE AIRLINES’
Cathay Pacific’s cargo traffic surged 9% y/y in December 2017, well ahead of Singapore Airlines’ 4% increase during this peak season. Both carriers’ cargo load factors improved 2ppts y/y but Cathay Pacific’s cargo load factor was much higher at 72% versus Singapore Airlines’ 67%, reflecting Cathay’s geographical advantage with its cargo catchment area in the Greater China region as well as its broader network. Cathay Pacific is the fourth largest cargo airline in the world and its cargo business is 70% larger than Singapore Airlines’. Cargo revenue contributes 23% of Cathay Pacific’s total revenue versus 12% for Singapore Airlines.
Chart: Cargo Traffic Growth (Dec 2017)
Note: Stocks with upside of more than 10% based on our fair value are assigned an Outperform rating. Stocks with downside of more than 10% based on our fair value are assigned an Underperform rating. Stocks with upside or downside of less than 10% based on our fair value are assigned an In-line rating. These are Crucial Perspective’s proprietary rating classifications and by no means serve as investment recommendations.
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