SIA share price in crisis mode

Fortune favours the brave. Should investors buy into SIA share now? Recently, SIA share price plunged to 10-year low as the unfolding Wuhan coronavirus threatens to derail global air travel growth. At the point of writing, thousands of people in China had been infected and death toll reached 106. In Singapore, there were five reported cases of people being infected.

Looking back, SIA share price had certainly come a long way since 2003. That was when the aviation world grappled with United States’ war with Iraq and the outbreak of SARS. In that episode, SIA had been significantly impacted but the business recovery had been unexpectedly swift. Thus, if this latest event turned out to be as serious as the 2003 version, there should be a V-shape turnaround in the carrier’s business.

Obviously, it is still early days and it is unknown whether the authorities will mete out further measures to strengthen the battle against the deadly virus. But one thing for sure is that it will be a challenging road ahead for SIA share price in the coming months.

2020 had barely started when Iran had a conflict with United States over the slaughter of an Iran top military personnel. The conflict led to a short spike in oil price, which surged to USD64 per barrel on 8 January 2020. As fuel price is the largest expense for aircraft operators, SIA’s bottom-line is likely to be hurt by increase in oil price. Due to this, SIA share turned bearish for January.

Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in SIA before. Whether SIA share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

SIA share price in baptism of fire

As a growth stock, SIA share price had been on a roll since 2017 due to growth in revenue, which surged from $14.8 billion in FY2017 to $16.3 billion in FY2019. The positive revenue growth was partly a result of the 3-year Transformation Programme. Among the key initiatives were the re-launching of non-stop services to Newark and Los Angeles in 2018 using A350-900 Ultra-Long Range aircraft and the increase of flights to countries like Germany, Japan, China and Indonesia.

Notably, the transformative effort had seen passenger load factor increased by 1% (year-on-year basis) for 1H FY2019/20. Generally speaking, traffic growth is positive across SIA, SilkAir and Scoots for 1H FY2019/20. But the feel-good factor for the SIA share price had been dampened by the Hong Kong riots in the past seven months.

As the saying goes, Man proposes, God disposes. The devastating civil unrest of Hong Kong, combined with the on-going Wuhan virus, will surely weigh on SIA share price for at least the next six months. Of course, these are external events that are beyond the management’s control. But these events masked the management’s ability to perform in certain areas pertaining to the Group’s business strategic growth.

While CEO Goh Choon Phong’s strategy to increase revenue to mitigate the effect of oil price volatility worked to a certain extent, SIA’s ability to revive its perennial [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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