Singapore Airlines Ltd: Strength at the core, drag in India
- 2QFY26 net profit declined 82% to SGD52mn, with 1HFY26 net profit at 26%/23% of DBS/consensus full-year estimates due to material drag from Air India
- Lower FY26/27F net profit estimates by 27%/9% on higher share of associates’ losses, despite operating profit adjusted 15%/6% higher
- SGD900mn special dividend package over three years (i.e. 10Scts/share annually) to help support share price
- Maintain HOLD with unchanged TP of SGD6.50
2QFY26 net profit significantly below both DBS and the street’s estimates. SIA reported net profit of SGD52mn (-82.1% y/y), bringing 1HFY26 net profit to SGD239mn, representing 29% and 23% of DBS and consensus full year estimates respectively. The underperformance was primarily attributed to the lower share of results of associated companies (-SGD417mn y/y as prior year excluded Air India), alongside lower interest income (-SGD103mn y/y). This is despite the group's stronger operating profits of SGD398mn (+23% y/y), with 2QFY26 revenue up 2.2% y/y to SGD4,885mn and jet fuel costs down 5.5% y/y.
While mainline carrier SIA achieved higher-than-expected passenger yields (-0.9% y/y) and load factor (+1.8ppts y/y), Scoot saw an acute 7.8% y/y decline in passenger yields despite higher load factor of 91.4% (+3.1ppts y/y) and the cargo segment faced lower yields (-3.3% y/y) and load factor (-1.0ppt y/y). Ex-fuel unit costs increased for both SIA (+3.4% y/y) and Scoot (+5.1% y/y) though it was cushioned by lower jet fuel prices.
Capital return initiative should be well-received by market. SIA proposed an interim dividend of 5Scts/share (vs 10Scts/share a year ago). More notably, it announced a multi-year capital return plan comprising 10Scts/share of special dividends annually for the next three years, amounting to c.SGD900mn over the period. The first interim special dividend was declared at 3Scts, bringing total dividends for 1HFY26 to 8Scts/share. The special dividend was a positive surprise and reflects SIA’s strong financial position, underscoring management’s commitment to shareholder returns and providing support for share price.
Overall travel demand remains stable, with the near-term outlook still favourable. Although competition has increased across the network and continues to pressure yields, the intent to travel remains strong, and yield declines are expected to continue at a more moderated pace. Management highlighted that passenger demand remains robust into the December peak quarter, with the group focused on optimising pricing and load factors through active revenue management. Load factors continue to trend well for both SIA and Scoot, including on US routes (mid to high 80s), where flights represent only about 15% of total capacity, the group is seeing only mild inbound softness offset by stronger outbound demand.
Scoot’s operating performance came under pressure, recording an operating loss for the second consecutive quarter. Scoot posted a SGD 23mn operating loss in 2QFY26, compared with a SGD 4mn profit a year ago, due to increased competition and higher costs. Beyond the heighted competitive pressure, the weaker yields (-7.8% y/y) also partly reflects the rapid expansion undertaken, with 12 new destinations launched and still require time to ramp up. Management highlighted that Scoot’s ability to expand is strategically important for the wider group, given its role in feeding traffic into SIA’s long-haul routes and supporting cross-sell across the network. Operationally, Scoot grounded an average of 6.5 aircraft between April and September 2025 due to Pratt & Whitney engine issues, which likely contributed to the 5.1% increase in ex-fuel unit costs. To mitigate the impact, the airline extended utilisation of certain aircraft and temporarily deployed E2 jets on A320 routes. FX headwinds also contributed to the weaker performance, as many regional currencies depreciated against the Singapore dollar.
Cargo trends softened in 2QFY26. On the cargo front, volumes contracted 0.4% y/y in the quarter, marking a reversal from the earlier resilience that was supported by front-loading activity and a modal shift amid tariff uncertainty, with front-loading tapering after July. Yields remained under pressure (-3.3% y/y) as several airlines diverted US-bound freight capacity back into Asia, intensifying competition on key lanes. However, management guided that demand appears relatively healthy heading into the traditional 3Q cargo peak.
Bottom-line drag from its investment in Air India persists, with the carrier accounting for the majority of the SGD400mn share of associate losses in 1HFY26. Management clarified that there were no one-offs related to the AI171 incident and that losses stemmed from several structural and operational issues. Air India voluntarily undertook additional safety procedures following the incident, resulting in a temporary suspension of c.15% of international wide-body flights and c.5% of narrow-body operations. Although not mandated, this pause lasted through most of 2Q and weighed on margins. At the same time, prolonged airspace closures over the India–Pakistan and Middle East corridors forced longer routings on Europe and US flights, adding fuel burn. Given its larger long-haul exposure relative to peers, Air India was disproportionately affected. Seasonality also played a role, as 2Q is typically the weakest quarter for the Indian market, while INR depreciation raised USD-denominated cost burdens. Management reiterated that SIA remains a minority shareholder with a 25% stake, focused on supporting Air India through expertise and collaboration rather than direct operational control.
Profitability likely to remain subdued in near-term given multi-year transformation program. Air India’s turnaround effort, which began in September 2022, spans fleet renewal, network expansion, product improvements, and operational upgrades. Management reaffirmed confidence in Air India’s long-term potential, citing its strategic position in a large, under-served market, although meaningful profit recovery for Air India will take time and is expected to weigh on SIA’s earnings through FY26-27. Importantly, management clarified that no additional capital injections are planned at present, having invested SGD660mn of its SGD880mn commitment as of March 2025. Any further participation would require a new agreement and formal disclosure.
Lower FY26/27F net profit estimates by 23%/4% due to higher associate losses, despite operating profit being revised up by 17%/13%. We cut our FY26F and FY27F core net profit estimates to SGD715mn and SGD1,089mn respectively to reflect increased losses from Air India at the associate level and higher taxation. This is despite lifting our FY26F and FY27F operating profit estimates by 17% and 13% respectively on higher passenger load factors and yields. Our TP remains unchanged at SGD6.50, pegged to 5.0x EV/EBITDA (blended FY26/27F vs FY26F previously), which is 0.5 standard deviation above its five-year pre-COVID average. Maintain HOLD on SIA, given the prospect of extended losses at Air India and unclear turnaround timeline.
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