Cathay Beats Singapore Air on Budget Air Woes: Chart of the Day

Shares of Cathay Pacific Airways Ltd. routed those of Singapore Airlines Ltd. since the global financial crisis, as the Hong Kong carrier avoided the budget-airline trap while SIA doubled down.

The CHART OF THE DAY shows Cathay shares delivered a total return of 53 percent in the five years to June 30, including reinvested dividends, compared with 6.3 percent for Singapore Air. The average annual return was 8.9 percent for the Hong Kong carrier versus 1.2 percent for SIA, which owns 40 percent of Tiger Airways Holdings Ltd. and 100 percent of Scoot, data compiled by Bloomberg show.

“Cathay Pacific has seen very strong recovery since the global financial crisis due to the fact that competition is lower in Hong Kong,” said Arnaud Bouchet, an analyst at BNP Paribas in Singapore. “Singapore Airlines has had to deal with intense competition in the Kangaroo routes, particularly from the Middle East airlines, and budget carriers within Southeast Asia.” Kangaroo flights refer to services between Australia and Europe.

Some 50 so-called budget airlines were established in Asia Pacific since 2002. About half of the low-fare carriers in the region are unprofitable this year, said Brendan Sobie, Singapore-based analyst at CAPA Centre for Aviation. Once considered a threat to the very existence of full-fare airlines, budget carriers are now scrambling to restructure with Tiger Air closing its Indonesia venture and AirAsia Bhd. deferring delivery of some of its planes.

The two carriers are seen by analysts as similar because the small size of their home territories negates domestic-route opportunities. Low-fare passengers currently account for 8 percent of total traffic in Hong Kong, compared with almost 60 percent for Singapore, according to data from CAPA.

“The growth outlook for Cathay Pacific looks optimistic next year, while the outlook for Singapore Airlines looks quite difficult,” Bouchet said. Most analysts agree. Cathay shares are expected to gain 14 percent over the next 12 months from their current price, based on the average target price of more than a dozen analysts compiled by Bloomberg. Singapore Air’s forecast return-potential is 2 percent for the same period, the data show.

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