Singapore Airlines shares took a hit in early trading following the release of the carrier's quarterly results, which fell short of expectations due to higher costs eating into record sales.

Share Performance

In early Wednesday trading, Singapore Airlines' shares were down by 9.0% to 6.71 Singapore dollars, marking the biggest one-day percentage loss since March 2020. However, year-to-date gains still stood at 2.3%.

Financial Performance

The flag carrier announced that third-quarter operating profit declined by 19% compared to a year earlier, as increased fuel and other expenses offset record revenue exceeding S$5 billion (US$3.72 billion). Despite this, the bottom line saw a 4.9% increase, partially attributed to reduced taxes.

Analyst Insights

Analysts at Citi expressed disappointment as the profit fell 15% below consensus expectations. They highlighted a 14% uptick in fuel cost per available seat kilometers and elevated ex-fuel expenses as concerning factors. However, they maintained a buy rating with a target price of S$7.72 but warned of potential short-term negative reactions in shares.

Future Outlook

Although optimistic about strong demand projections for the first half of 2024 and robust passenger yield in the quarter ended December, Citi analysts raised concerns regarding softer cargo yield increases and escalating cost pressures.

Analyst Recommendations

Nomura analysts viewed the results as another strong quarter, acknowledging some setbacks in cargo revenue and competitive pressures amid global capacity restoration by airlines. They reiterated a buy rating with a S$9.17 target price, emphasizing the stock's undervaluation compared to historical averages and an attractive 5.0% dividend yield.

Maintaining a positive outlook despite challenges faced, Singapore Airlines aims to navigate through the evolving industry landscape and pursue growth opportunities in the airline sector.

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