Ready to fly higher as borders gradually open up
The aviation and travel industries have clearly suffered amid the Covid-19 pandemic. But the world is slowly learning to live with the pandemic, and for several countries, an endemic is in sight. Singapore, for instance, is adamant about moving forward, but cautiously. To allow families to reunite and residents to fulfil their desire for travelling, the Singapore government introduced vaccinated travel lanes (VTLs) to allow travel to certain countries without the need for quarantine on both sides. Although multiple rounds of Covid-19 testing are required, for many travellers, it is worth the hassle.
With that, the local carrier Singapore Airlines (SIA) can finally take off, with pentup demand driving the recovery. When VTL flights were made available, bookings increased by seven times, including those for premium cabins, which provide better margins for the carrier.
According to travel booking platform Expedia, in the first 24 hours from the announcement of the Singapore-Malaysia VTL, search volumes for flights between the two neighbouring countries grew by 17 times on its site. The bulk of the traffic is probably from Malaysians in Singapore eager to head home after nearly two years.
The year 2020 was a tough one for SIA, as its stock price plunged to all-time lows when the bulk of its fleet had to be grounded during the lockdowns. It also had to tap controlling shareholder Temasek and other investors for a $15 billion rescue package.
It has been almost two years since the pandemic started and SIA will need more time to return to its heydays, but its recent results and current share price suggest that stock is rebounding. In the past 12 months, shares in SIA have gained by about 23% to trade at $5.07 on Jan 24. At its nadir back in November 2020, SIA shares were changing hands at just $3.38.
Operationally, there have been some improvements. In its latest 1HFY2021 ended September 2021 results, revenue was up 73% y-o-y to $2.82 billion, due to higher passenger numbers and stronger cargo volume. Together with lower impairments and costs, SIA was able to reduce its losses by 75.9% y-o-y to $837 million from $3.46 billion.
Although Singapore currently has VTLs with 24 other countries and has plans for more, the recent Omicron variant caused an unexpected suspension in the sales of new VTL tickets from Dec 23, 2021, to Jan 20. Sales have since resumed but capped at 50% of the allocated quota.
The outlook for passenger travel may be rather shaky, but one bright spot shining for SIA throughout the pandemic is its cargo segment, as shipping lines struggle to cope with the demand of widespread constraints in handling capacity, causing several companies to turn to air freight to deliver their goods.
Analysts are, however, showing mixed sentiments on the stock, as some believe that valuations are unattractive and the Covid-19 situation is still rampant in some countries. Nonetheless, the industry is poised for a recovery, albeit a slow one, thanks to the resumption and growing VTL flight routes.