Ever since budget airlines came into the region, air travel has been increasingly affordable and at times hard to resist the promotion newsletter that they send to your email. This increase is significant as Changi Airport’s passenger traffic is up by 9.2 percent in April as the airport handled 4.79 million passengers.
Aircraft movements also increased as they are 4.3 percent higher with 29,460 landings and takeoffs. Supporting the air movement, cargo shipments increased by 7.2 percent and reached 164,530 tonnes. A further growth can be expected from Singapore air travel movement as Terminal 4 opens next year.
This will lead investors to the important question: How can we benefit from it?
Should We Buy The Airlines?
The first thing that comes to our minds when we talk about air travel will be Singapore Airlines (SIA). However, SIA might not be profiting the most from the increase in air travel as budget airlines have been giving it a run for its money. Profit margin has been under pressure falling over the past five years, only to hold their grounds after oil prices fell sharply.
Regarding airlines, you can look at CoffeeTalk’s coverage on SIA feature here, and Air Asia’s article here.
Who Will Truly Benefit From It?
More aeroplanes will be landing in Singapore as it gains prominence as a hub for air logistics. Earlier this year, DHL Supply Chain has opened a new $160 million logistic facility in Singapore as an anticipation of higher traffic. Investors should be looking at the service providers in Changi Airport whose business will increase along with the traffic and not get squeezed by the budget airlines.
The below two stocks are highlighted by us as the potential companies that are well-positioned to reap from the increase in air travel.
1. SATS
SATS is the main ground handling and catering company at Singapore Changi Airport which makes it best positioned to gain from the air travel growth. The company provides a large range of services from airport security to catering for airlines. An earlier coverage by Aspire on the stock can be found here.
Analysts from Citi Research reiterated their “Buy” call on SATS with a target price of $4.61.
2. SIA Engineering
Not limited to what its name suggests, SIA Engineering (SIE) does more than providing engineering services to SIA. It also provides maintenance services in Changi Airport for different companies and is one of the companies that will see more business opportunities when air traffic increase.
As a well-known dividend stock in Singapore, SIE is trading at an indicative yield of 3.62 percent. However, analysts from DBS Research are not very bullish on the stock as they gave it a “Hold” call with a target price of $3.84. They cited overvaluation due to a lower payout ratio.
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