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.
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