No flight of fancy: Lower fuel costs propel airlines’ earnings

Airlines will be entangled from expensive hedge positions.

Singapore firms are up for a gloomy results season, but airlines seem to be the lone bright spot, thanks to the positive impact of lower fuel costs.

According to analysts from DBS, major airlines SIA and Tiger Airways are set to benefit from fuel cost savings.

“Tiger should also see yield recovery after getting rid of its low-yielding loss-making routes. SIA is an earnings recovery story. Its shares rose 4.5% last week ahead of its results release on 5th November. The stock is now within 4% of our $11.50 target price, which is a level that caps further upside in the near term,” DBS said.

“Tiger Airways is a turnaround play. Our analyst believes the Group should see a more significant boost from lower fuel costs, especially from 2HCY2015 onwards. The forecast is for S$39m net profit for the current FY16, reversing the previous year’s (FY15) loss of S$264m. Net profit is seen improving further to S$55m for FY17F. At the current level, the stocks offer ample upside to our fundamental TP of $0.42,” DBS added.

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