Cathay and Singapore Airlines - Cathay beat SIA in passenger loads while SIA beat Cathay in cargo

Cathay's passenger demand continues to be more robust than SIA's…: Cathay’s passenger traffic rose 7% y/y in September 2015, well ahead of SIA’s 1% fall (parent airline only).

…and the rise in passenger utilization was also higher for Cathay: Cathay grew passenger capacity by 3% y/y in September while SIA cut capacity by 1%. Consequently, Cathay's passenger load factor rose 3ppts y/y to 84% in September while SIA's load factor was steady y/y at 81%.

Load factors rose/held steady in all route regions for Cathay except N European routes while load factors fell in all route regions for SIA except SW Pacific and West Asia/Africa routes: CX’s loads rose 6ppts/5ppts/4ppts/3ppts/1ppt y/y on N America (85%), NE Asia (79%), SW Pacific & S Africa (89%), China (78%), SE Asia (79%), were steady y/y on India Subcont. & Middle East (82%) and fell 2ppts y/y on European (89%) routes. In comparison, SIA’s loads rose 5ppts/2ppts y/y on SW Pacific (90%) and West Asia & Africa (69%) routes but fell 1ppt/1ppt/2ppts y/y on N & SE Asian (74%), American (80%) and European (87%) routes.

SIA’s 3 subsidiary carriers’ load factors were mixed: Silkair's passenger traffic rose 8% while capacity rose 9% y/y, resulting in 1ppt fall y/y in loads to 67%. Scoot’s passengers carried rose 23% y/y, passenger traffic rose 22% y/y while passenger capacity rose 15% y/y, resulting in a 5ppts y/y rise in load factor to 84%. Tigerair’s passengers carried fell 1% y/y while traffic and capacity fell 4% y/y, resulting in a steady load factor of 82%.

Cargo demand rose y/y for both Cathay and SIA while CLF was steady y/y for Cathay but was higher for SIA: Cargo loads were steady y/y for Cathay and rose 1ppt y/y SIA to 62%/63% in September driven by the launch of new IT products which should continue to help lift rush orders demand in 4Q.

Capacity growth stronger in HK than in SG near term but both benign: Airlines’ passenger capacity (ASK) in the SG market is expected to rise c.3% y/y in 2H15 based on current flight schedules. SIA’s capacity is expected to remain steady y/y as it begins to roll out its premium economy class product from August 2015. HK market’s capacity is expected to rise c.6% y/y in 2H15 but Cathay’s capacity is expected to rise c.10% y/y which is on the aggressive side (source: Flightglobal, JPM estimates).

Technical Analysis
Daily Chart
Asian airlines' share prices have risen 9% in the last one month and 5% YTD; SIA outperformed Cathay slightly in the last one month rising 10% vs Cathay's 9% rise. On YTD basis, SIA/Cathay fell 5%/9% which we view overdone and see this as a good buying opportunity given their undemanding valuations at 1.0x P/B and 1.1x P/B respectively.

Recent news:
1) SIA to restart non-stop SIN-US flights using A350-900ULR aircraft to be delivered in 2018 which we view positively. SIA will upgrade 7 of its 63 A350-900 aircraft to A350-900ULR and will convert 4 A350-900 options into firm order resulting in total order of 67 A350-900s and 16 options.

2) SIA plans to launch its A350-900 aircraft to Amsterdam as its inaugural destination starting April, 2016.

3) SIA expanded its KrisFlyer miles program to include Tigerair.

4) Scoot will operate services to Jeddah from May, 2016. (Read Report)

Source : JP Morgan Asia Pacific Equity Research

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