Runway widens for SIA as Jetstar Asia exits amid aviation turbulence

Straits Times

5 hours ago

With one less airline operating, there will be fewer available seats, which may lead to higher load factors for SIA and Scoot. PHOTO: ST FILE
SINGAPORE - Escalating tensions between Israel and Iran and the tragic crash of Air India Flight AI171 have roiled the global aviation industry and clouded the operational outlook for many airlines, including major carriers like Singapore Airlines (SIA).
Yet there could be a silver lining for the national airline amid the turbulence, following the closure of Singapore-based budget carrier Jetstar Asia.
On June 12, an Air India plane bound for London crashed outside the perimeter of India's Ahmedabad airport, resulting in more than 270 casualties.
The crash could have an impact on SIA, as it holds a 25.1 per cent stake in Air India, after the carrier merged with Vistara, another Indian airline, in November 2024. Before the merger, Vistara was jointly owned by Tata Sons and SIA.
A day later, on June 13, geopolitical tensions rose sharply when Israel launched air strikes on Iran, with Iran subsequently retaliating.
The attacks, which continued over the weekend, sent oil prices surging as much as 7 per cent on June 13 before partially retreating. Volatile oil prices could have a direct impact on airlines, including SIA, as jet fuel, derived from oil, is its largest operating expense.
US airline shares fell, hit by worries of a broad and protracted Middle East conflict. Shares of American Airlines, Delta Air Lines and United Airlines all finished lower on June 13 before recovering on June 16.
SIA shares fell around 1.3 per cent on June 13 to $6.94. They closed lower at $6.88 on June 17.
Despite the uncertain outlook, there are unique growth opportunities for SIA, following budget carrier Jetstar Asia's June 11 announcement that it will close on July 31.
SIA will reportedly ramp up flights to key Asian destinations after Jetstar Asia ceases operations. Scoot, SIA's low-cost subsidiary, plans to launch new flights to Okinawa, Japan and Labuan Bajo, Indonesia.
This bodes well for SIA, as Scoot is now well-positioned to capture market share following Jetstar Asia's exit, said Morningstar director Lorraine Tan.
Maybank analyst Eric Ong added: 'The exit of Jetstar Asia may bring some reprieve in the competitive low-cost carrier market in terms of load factor and yield.'
With one less airline operating, there will be fewer available seats, which may lead to higher load factors for SIA and Scoot as more passengers fly on existing flights.
In addition, the reduced competition could allow the airlines to stabilise or even increase ticket prices, leading to improved yields and profitability.
Jetstar Asia operates around 180 weekly flights from Changi Airport and carried 2.3 million passengers in 2024. Its exit creates a significant gap in the market – one that competitors like Scoot are well-placed to fill.
For the year ended March 31, SIA and Scoot carried a record 39.4 million passengers.
Morningstar's Ms Tan noted that while the exit of Jetstar Asia will have a more material impact on SIA than the crash of the Air India flight and Israel-Iran conflict, oil prices may stay elevated while fighting continues.
'Increased market share and reduced competition could be offset by higher fuel costs and increased associate losses this year,' she said.
DBS analyst Jason Sum noted that SIA remains 'relatively insulated' from the rise in Brent crude and jet fuel prices, having hedged around 40 per cent of its near-term fuel requirements.
SIA uses a fuel-hedging policy to manage the volatility of oil prices.
The higher fuel cost could also be partially mitigated by a weaker US dollar, added OCBC head of investment research Carmen Lee.
In any case, analysts from energy research company Rystad Energy noted that oil prices might already be stabilising rather than escalating further.
For now, the conflict appears likely to be contained, the analysts said, projecting that oil prices will be capped at below US$80 per barrel.
The price of Brent crude moderated to hover between US$73 and US$74 per barrel on June 16, after hitting US$78 on June 13.
But airlines' growth can also be hit by souring consumer sentiment, if people cut back on their travel plans because of rising tensions in the Middle East, OCBC's Ms Lee said.
DBS' Mr Sum also noted that the Air India incident could weigh on consumer perception and potentially slow the airline's transformation.
'This could result in a moderately larger share of losses for SIA, although we do not expect a material impact on SIA's bottom line at this stage,' he said.
Sue-Ann Tan is a business correspondent at The Straits Times covering capital markets and sustainable finance.
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