AirAsia May Become SIA's Biggest Threat - Citi

04 Sep 2012

Singapore Airlines (C6L.SG) may be moving forward, but it's staying still, Citigroup says.  Product upgrades may help SIA maintain its premium-service offering, but competing airlines have caught up fast since its last major cabin overhaul five years ago, it says.   "SIA's product upgrades may be viewed as overdue and necessarily defensive in light of recent competition." It adds, competition in SilkAir's space is also heating up, with many Asian airlines also targeting the short-haul market with an upgraded, similar product.  AirAsia (5099.KU) may become SIA's biggest threat, it says. "AirAsia may develop a very strong regional network that SIA/SilkAir may not match (and over a much lower cost base)."  The operating environment has also deteriorated further, with continued economic uncertainty weakening Asean airlines' pricing power, it says. "SIA stands at the intersection of strong headwinds buffeting Asian airlines, yet its strategic response lacks coordination and may be ineffective. SIA's ROE may be structurally lower, and current valuations do not look justified." It keeps a Sell call with S$9.40 target. The stock is up 0.5% at S$10.65.