20-6-2023 (HONG KONG) The Covid-19 pandemic has had contrasting effects on Singapore Airlines (SIA) and Cathay Pacific Airways, the leading carriers of two major financial hubs in Asia. The disparity in their valuations is evident, with SIA’s market value reaching US$17 billion (S$22.8 billion), nearly three times that of Cathay’s.
Just four years ago, the difference between their valuations was a mere US$2 billion, highlighting the significant shift in fortunes. SIA recently concluded a 12-day streak of gains, marking its longest positive run since 2008, and has witnessed a 40% increase in its stock price in 2023. In contrast, Cathay has experienced a 9.3% decline.
While both airlines have made strides toward recovery compared to the depths of the pandemic, SIA has rebounded at a much faster pace, riding the wave of resurging travel demand. Analysts have labeled SIA as the “poster child for the Asian airline recovery,” a sentiment reflected in its stock price.
Cathay, on the other hand, has faced significant obstacles in its rebuilding efforts. The reluctance of the Hong Kong government to ease virus-related restrictions has hindered its progress. The airline continues to struggle with staff shortages and reduced services. Cathay does not anticipate returning to pre-pandemic passenger capacity levels until the end of 2024.
Despite soaring airfares, the strong desire to travel after prolonged lockdowns has remained intact, benefiting many airlines. This trend, often referred to as “revenge travel,” has contributed to SIA’s impressive financial performance. The airline reported record earnings of $2.16 billion for the fiscal year ending in March, with revenue of $17.8 billion surpassing pre-Covid-19 levels.
While Cathay’s position has also improved, its 2022 revenue of HK$51 billion (S$8.75 billion) still falls short of the pre-crisis level, which exceeds twice that amount. However, the airline has managed to generate sufficient cash to cover a HK$1.52 billion dividend payment to the government by the end of June.
SIA’s employees are reaping the rewards of the airline’s success, with bonuses equivalent to approximately eight months’ salary being distributed. In contrast, Cathay’s recent pay adjustments have been met with skepticism, leading to low morale among pilots.
SIA has emerged as one of the top-performing airline stocks globally in the past three months, experiencing a surge of 34%. Only Taiwan’s Eva Airways has achieved greater gains, rallying by 56%. In comparison, the Straits Times Index in Singapore has risen by approximately 2%, while Cathay’s stock has grown by 6.2%.
Investors in SIA have shown confidence in the airline’s capacity rebuilding efforts, expecting a boost in earnings. Advanced bookings also appear promising, especially considering competitors like Cathay continue to face resource limitations.
In May, SIA carried 2.8 million passengers, achieving 88% of its pre-Covid-19 capacity and approaching its previous peak of 3.4 million passengers set in January 2020. In April, Cathay transported nearly 1.4 million passengers, but the airline anticipates operating at only 70% of its pre-pandemic capacity by the end of 2023.
Both airlines have been actively recruiting new employees; however, Cathay faces the greater challenge of recovering from a more significant setback. The airline witnessed nearly 40% staff attrition during the pandemic and owes the government a rescue package repayment of HK$19.5 billion.
SIA, leveraging its relatively stronger position, is forging partnerships with several regional airlines, including Garuda Indonesia, Malaysia Airlines, Thai Airways International, and Vietnam Airlines. Currently, SIA and its low-cost unit Scoot serve 114 destinations, while Cathay and HK Express have restored operations to only 70 of their pre-pandemic destinations. Before the crisis, Cathay served 136 destinations, and HK Express served 119.
SIA and Scoot jointly operate 195 aircraft, while Cathay possesses 222 planes, some of which remain in storage. The speed at which Cathay can reactivate its grounded fleet will play a crucial role in its recovery, but it is clear that SIA’s dominance will persist for some time.
Cathay’s CEO, Ronald Lam, expressed confidence in the airline’s journey to rebuild Hong Kong’s aviation sector, but it remains evident that catching up to SIA will be a formidable challenge.
