SIA’s share price rises as website crashes due to overwhelming demand


Airplane among the clouds

Singapore’s vaccinated traffic lanes (VTLs) have been extended to 11 countries and the travel sluices have opened.

After being locked in their homes for almost two years, it’s no surprise Singaporeans want to travel.

VTLs are attractive because they provide a quarantine-free travel experience without the hassle of serving a stay-at-home notice.

The VTL program started on September 8 with two countries: Germany and Brunei.

On Saturday, the VTL program was extended to nine other countries, including South Korea, Canada, France and Denmark.

The news sparked a frenzy of travelers looking to book flights.

Shortly after the announcement, Singapore Airlines Limited (SGX: C6L), or SIA, the website crashed due to the flow of traffic, albeit briefly.

In turn, the SIA share price jumped up to 9% at some point this morning.

Is the reopening of Singapore’s taxiways the turning point expected by the airline?

Opening of Singapore

Prime Minister Lee Hsien Loong reiterated last Saturday in a televised address that Singapore could not remain “locked up and closed indefinitely”.

In his speech, he said COVID-19 is now classified as a “manageable disease” with around 83% of Singapore’s population fully vaccinated.

The statement is a clear departure from the country’s previous stance of trying to eliminate all infections, known as “COVID-Zero”.

This new approach is expected to see Singapore gradually opening up its borders to more countries, signaling a willingness to regain lost ground for travel and tourism.

It should be sweet music to SIA ears as the airline braces for a sustained recovery.

However, this “new normal” is expected to take three to six months, as the country must prepare its health system for an increase in serious infections.

Planning more flights

In response, the SIA and its budget arm Scoot wasted no time in increasing the flights designated to carry vaccinated travelers to and from destinations under VTLs.

In a statement on Saturday, Scoot said it would resume non-stop flights three times a week between Singapore and Berlin.

At the same time, SIA will begin operating VTL flights from Singapore to major cities like Amsterdam, London, New York, Paris and Rome from October 19.

Given the high interest, investors should see a significant improvement in passenger numbers and load factors in November, when the full month begins for the 11 VTLs.

Longer stays could be considered.

Multi-city itineraries are allowed if customers meet the 14-day travel history requirements, increasing the chances of people booking full tours and giving a major boost to besieged industries such as tourism and companies. aerial.

Gradual increase in the number of passengers

Source: Singapore Airline Operation Numbers (SGXNet); compiled by the author

SIA has already seen a steady increase in passenger numbers even before the increase was announced in VTL countries.

The chart above shows that passenger numbers have been trending upward since March earlier this year, having more than doubled from the February low to reach 155,400.

When SIA releases its September numbers, we should see that number increase even more as the first VTL began earlier this month.

While this is still a far cry from the 3.5 million passengers carried by SIA in December 2019, it represents a much needed path to normalcy for the airline.

Daily arrivals limit

Investors should refrain from getting too excited, however.

A daily cap of 3,000 arrivals per day for the VTL regime is still in effect.

As such, capacity will be artificially limited as SIA must operate dedicated VTL flights.

With limited options and demand far exceeding supply, prices can rise, discouraging potential travelers.

The technical issues associated with SIA’s website could continue if the rise in demand continues as Singapore opens more VTLs.

Unless the cap is relaxed or removed, SIA’s capacity will be limited and higher fares could deter travelers from booking flights until other airlines can increase capacity to alleviate the crisis.

Get Smart: demand cannot be met by supply

In the short term, the airline will experience a huge increase in demand and will be able to do more flights to take advantage of it.

The turnover is expected to increase with the increase in the number of passengers.

However, with constraints still in place, the carrier may not yet break even.

It may be several more months and more of VTL before the SIA can safely say it is out of the woods.

There is, for now, light at the end of the tunnel.

Disclaimer: Royston Yang does not own any shares in any of the companies mentioned.

SIA’s share price rises as its website goes down due to overwhelming demand appeared first on The Smart Investor.

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