Flag carrier now expects the union to be completed by end-2024

 

SINGAPORE Airlines : C6L +1.13% (SIA) has received approval from India&rsquo s government for foreign direct investment (FDI) into the entity resulting from the merger of SIA&rsquo s 49 per cent-associated company, Tata SIA Airlines &ndash operating as Vistara &ndash and Air India.

 

On Friday (Aug 30), the flag carrier said that the completion of the merger is now expected by end-2024.

 

When the group first announced its plan to merge Vistara and Air India in November 2022, this was expected to be completed in March 2024, subject to regulatory approvals.

 

SIA said that the FDI approval, together with the other governmental and regulatory clearances and approvals received to date, represented a &ldquo significant development&rdquo towards the completion of the merger.

 

It added that both SIA and Vistara were in discussions to extend the long-stop date, previously indicated as Oct 31, in view of the transaction&rsquo s latest expected completion date.

 

Shares of SIA were trading S$0.03 or 0.5 per cent higher at S$6.24 as at the midday break on Friday, after news of the approval given for the FDI under the deal.

 

Obtaining FDI clearance for the enlarged entity represented the final regulatory hurdle for the proposed merger between Vistara and Air India.

 

The completed transaction will result in SIA holding 25.1 per cent of the enlarged entity, which is expected to be four to five times larger than Vistara.

 

SIA also expects it to boost the group&rsquo s presence in India, strengthen its multi-hub strategy, and allow it to continue participating directly in a large and fast-growing aviation market.

 

Vistara-Air India merger won&rsquo t yield instant profits but could benefit SIA in the long haul: analysts

 

Analysts had initially responded with mixed opinions about the group&rsquo s prospects for expansion in India, given the country&rsquo s highly competitive aviation scene and its historical lack of profitability.

 

Citi equity analyst Kaseedit Choonnawat, however, anticipated the combination to be favourable for SIA in the long haul. This is because the combined entity should have a higher capacity, and certain levels of frequency or destination dominance, especially on international routes, he said in a November 2022 report.

 

SIA has, in recent years, sought to expand its reach beyond Singapore&rsquo s market through partnerships and joint ventures with the likes of Malaysia Airlines, Garuda Indonesia and All Nippon Airways.

 

Air India, which includes low-cost carriers Air India Express and AirAsia India, is wholly owned by Tata Sons. Vistara is a 51:49 joint venture between Tata Sons and SIA. It makes SIA the only foreign airline with a direct stake in an Indian carrier.

 

While India&rsquo s antitrust body approved the deal in September 2023, the Competition and Consumer Commission of Singapore (CCCS) identified certain competition concerns. One was that both parties possessed the majority of market share among airlines operating direct flights along four routes between Singapore and the Indian cities of New Delhi, Mumbai, Chennai and Tiruchirappalli.

 

To address these issues, SIA and Tata have proposed to maintain capacity on these flights at pre-Covid levels, appoint independent auditors to monitor compliance with capacity commitments, and submit annual and interim reports. The competition watchdog said that it considered these suggestions &ldquo sufficient to address the competition concerns arising from the transactions&rdquo , so it gave its green light for the deal, but it is subject to conditions. 

Name	Dividend Yield	Dividend Rating
BRC Asia (SGX:BEC)	7.37%	★ ★ ★ ★ ★ ☆
UOB-Kay Hian Holdings (SGX:U10)	6.81%	★ ★ ★ ★ ★ ☆
China Sunsine Chemical Holdings (SGX:QES)	6.53%	★ ★ ★ ★ ★ ☆
UOL Group (SGX:U14)	3.76%	★ ★ ★ ★ ★ ☆
Bumitama Agri (SGX:P8Z)	6.60%	★ ★ ★ ★ ★ ☆
Civmec (SGX:P9D)	5.38%	★ ★ ★ ★ ★ ☆
Singapore Exchange (SGX:S68)	3.67%	★ ★ ★ ★ ★ ☆
DBS Group Holdings (SGX:D05)	6.43%	★ ★ ★ ★ ★ ☆
Singapore Airlines (SGX:C6L)	8.16%	★ ★ ★ ★ ★ ☆
YHI International (SGX:BPF)	6.77%	★ ★ ★ ★ ★ ☆

 

INSTITUTIONS were net buyers of Singapore stocks over the four trading sessions spanning Aug 8 to Wednesday&rsquo s (Aug 14) close, with S$31.5 million of net institutional inflow. The period also saw 18 primary-listed companies conduct buybacks with a total consideration of S$22.5 million.

 

Like the preceding nine sessions, Singapore Airlines led the buyback consideration tally, acquiring 1.5 million shares at an average price of S$5.90 per share.

 

Digital Core Reit Management again acquired units of Digital Core Real Estate Investment Trust : DCRU +2.56% (Reit) over each of the four sessions.

 

Leading the net institutional inflow over the four sessions were Singapore Exchange : S68 +1.66%, Singtel : Z74 -1.32%, Yangzijiang Shipbuilding (Holdings) : BS6 -1.15%, Jardine Cycle & Carriage : C07 +0.64%, CapitaLand Ascendas Reit : A17U +0.74%, Sembcorp Industries : U96 +0.64%, Keppel DC Reit : AJBU -0.49%, Sheng Siong Group : OV8 0%, ComfortDelGro Corporation : C52 +0.7%, and CapitaLand Integrated Commercial Trust : C38U +0.48%.

 

Leading the net institutional outflow were Keppel : BN4 +0.85%, Singapore Airlines : C6L -0.16%, UOB : U11 +1.33%, OCBC : O39 +2.07%, Thai Beverage : Y92 +2.11%, Mapletree Logistics Trust : M44U +0.78%, Wilmar International : F34 +0.32%, Singapore Technologies Engineering : S63 0%, Frasers Logistics & Commercial Trust : BUOU +1% and Nanofilm Technologies International : MZH +1.42%.

 

The four trading sessions also saw more than 60 director interests and substantial shareholdings filed for over 30 primary-listed stocks. Directors or CEOs filed 14 acquisitions, and three disposals, while substantial shareholders filed seven acquisitions and one disposal.

 

These are moves made in response to travel trends through the year, and Chinese airlines have also given SIA competition

THE planned frequencies and passenger capacity boost by Singapore Airlines (SIA) : C6L +2% are unlikely to move the needle for the national carrier&rsquo s yields and load factors, say industry watchers.

 

DBS analyst Jason Sum pointed out, for example, that such moves by the airline for the 2025 travel season &ndash to deploy more capacity on routes where there is robust demand, or less competition &ndash are strategic shifts it makes consistently anyway, amid increasing competition across the board.

 

SIA announced early this week that it would raise flight frequencies and passenger capacity to popular destinations in the Northern Hemisphere to capture the demand for travel in the 2025 mid-year summer season.

 

The 2025 Northern Summer runs from Mar 30, 2025 to Oct 25, 2025 and is a period of high demand.

 

There will be up to 10 flights a week to Adelaide in Australia, across the Northern Winter 2024 and Northern Summer 2025 seasons, up from the current seven weekly services. 

 

SIA also plans to use the jumbo Airbus A380 for one of its two daily flights to Narita Airport in Tokyo, in place of Boeing 787-10, which has fewer seats.

 

Like Sum, Mabel Kwan, managing director at Alton Aviation Consultancy, sees the exercise as a regular review by SIA of its network plan and rationalisation, in response to demand and competitive dynamics. 

 

Some routes are being ramped up to daily flights, creating a more attractive product and more scheduling options for travellers. And the launch of direct services to popular leisure destinations, such as the Spanish city of Barcelona, is a &ldquo much awaited development and a win for SIA&rdquo , she added. 

 

The additional capacities should not have a material impact on network-wide yield and load factors, although route-specific metrics would need a period of stabilisation for demand-supply dynamics to play out, she said. 

 

But with aircraft shortage and supply chain issues continuing to disrupt the industry, she noted that SIA&rsquo s ability to ramp up capacity and secure additional slots for key hubs and grow its market share could provide a strategic advantage in the longer term.

 

Hu You, analyst of the research and portfolio management team at FSMOne Singapore, believes the adjustments are expected to enhance the passenger load factor by catering to higher travel demand.

 

She said the airline posted a 2.6 percentage point lower year-on-year passenger load factor at 87.1 per cent in June. &ldquo To address this shortfall and better align capacity with traffic flows, it is not surprising to see SIA adjusting its network for 2025.&rdquo

 

Liu Miao Miao, Phillip Securities Research analyst, said the addition of long-haul flights would support revenue performance, as these flights typically have higher revenue passenger kilometres (or RPK) &ndash even as yields may be further compressed because of the rising capacity in the industry.

 

The mainland Chinese market has always been important to SIA and its budget arm, Scoot. SIA has announced that it would be boosting frequencies to this market. 

 

However, Chinese airlines are giving SIA a run for its money.

 

Much of the capacity to China was reinstated in 2023, although overall flights remained lower than pre-pandemic for SIA, said Kwan of Alton. In the meantime, Chinese carriers have been raising their international capacity, planning to rebuild their networks of intercontinental routes, and increasing their market share of outbound flights to Europe and South-east Asia. 

 

She has also noted that SIA has been using Scoot as an entry product to open up more routes to secondary cities in China. 

 

DBS&rsquo Sum noted that the SIA group&rsquo s capacity to and from China reached approximately 87 per cent of pre-pandemic levels as of the week of Aug 12. &ldquo While there is still room for recovery, progress may be challenging.&rdquo

 

He said the rapid ramp-up of international flights by Chinese airlines has whittled the SIA group&rsquo s market share on these routes from 64 per cent pre-pandemic to about 49 per cent.

 

FSMOne Singapore&rsquo s Hu noted that SIA is still actively restoring operations across other cities in China that were previously limited by regulatory constraints, even as it is set to raise frequencies to Beijing. &ldquo We therefore expect the capacity in China will be only gradually expanded over time.&rdquo

 

Liu of Phillip said: &ldquo Markets such as China and Indonesia, which have experienced a slower-than-expected recovery, continue to operate below pre-pandemic capacity levels. We believe these markets have the potential to become revenue catalysts.&rdquo

 

SIA&rsquo s latest operating numbers published on Thursday (Aug 15) confirmed that the increased capacity in North Asia is crimping its load factors.

 

It posted lower passenger load factors for both the full-service airline and budget carrier for July, compared to the year-ago period. Load factor measures the percentage of available seating capacity filled by paying passengers.

 

The group passenger load factor came in at 85.6 per cent, 4.2 percentage points lower year on year. Those of SIA and Scoot were 84.7 per cent and 88.9 per cent, respectively, down by 4.3 percentage points and 3.8 percentage points, also respectively. 

 

SIA said the group recorded lower load factors for the East Asia route region as a result of the significant growth in capacity in North Asia, notwithstanding &ldquo robust&rdquo increase in passenger traffic.

 

Cargo loads rose by 18.5 per cent from the previous year, driven by robust e-commerce demand some of this growth was the result of the disruptions to sea freight and congestion in global ports.

 

The growth in cargo loads outpaced the 8.2 per cent growth in capacity cargo load factor was 57.4 per cent, up five percentage points year on year.

 

As at end-July, SIA and Scoot covered a total of 125 destinations in 36 countries and territories across its passenger network.