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Singapore and Hong Kong-listed AVIATION and Hospitality stocks are poised to see a boost from the next two-way air travel bubble between the two major Asian financial centers.
Flag carriers Singapore Airlines (SIA) and Cathay Pacific Airways, in particular, will be among the beneficiaries, the DBS and Jefferies investigation teams said in separate reports on Friday.
Hong Kong and Singapore agreed this week in principle to form an air transport bubble for all travel purposes, with no quarantine requirements or stay-at-home notice for arrivals. Anyone who has spent 14 days in any territory will be eligible to travel.
This could spark a lot of interest among business and leisure travelers, especially if it takes off in time for the end of the year holidays, travel agents said.
The bubble’s start date is unknown, but Singapore’s Transport Minister Ong Ye Kung said on Thursday that he expected to see it begin in a matter of weeks.
Last year, more than 450,000 visitors from Singapore made their way to Hong Kong. Similarly, Hong Kong was one of Singapore’s top visitor sources, attracting some 490,000 people or 3 percent of the city’s total last year, noted DBS Group Research.
The news will therefore give Singapore’s hotel sector a boost, which may see better occupancy, DBS analyst Yeo Kee Yan wrote on Friday.
He added that his best options are SIA, SATS and the Far East Hospitality Trust (FEHT).
SIA had operated up to seven daily flights from Singapore to Hong Kong prior to the Covid-19 pandemic, Yeo said.
DBS has a call “waiting” on the flag carrier with a price target of S $ 3.75. SIA’s stock price rose 0.03 Singapore dollars or 0.9% to trade at 3.52 Singapore dollars as of 2:42 p.m. Friday, with 1.4 million shares changing hands.
On Thursday, SIA also reported that its group’s passenger capacity fell 90.8 percent from the year in September. In contrast, its cargo load factor increased 29.5 percent year-on-year as the contraction in capacity outpaced the drop in freight traffic.
DBS also favors in-flight catering and ground handling services company SATS, which the analyst says will benefit from an improvement in air traffic. Yeo has a “buy” rating and a price target of S $ 3.66 for the stock.
SATS fell 0.04 Singapore dollars or 1.3 percent to 3.03 Singapore dollars as of 2:43 p.m. on Friday, with about 2.6 million shares traded.
DBS also likes FEHT, saying the hospitality game is a “buy” with a price target of 60 Singapore cents. FEHT serviced hotels and residences are primarily located in the central region of Singapore, along the Orchard Road, Marina Bay and Singapore River business belt, as well as in the Civic and Cultural District, which recorded a large volume of business and leisure travelers before the coronavirus pandemic.
Securities with FEHT staples were trading at 55.5 Singapore cents as of 2:44 p.m., down 0.5 cents or 0.9 percent.
In another report, Jefferies equity analyst Andrew Lee said he believes the initial number of flights available under the Singapore-Hong Kong air travel bubble could be limited.
He also noted that the news caused Cathay Pacific’s share price to rebound 6 percent on Thursday. Shares of the Hong Kong carrier continued to rise, trading at HK $ 5.82 as of 1:15 PM on Friday, an increase of HK $ 0.21 or 3.7 percent.
Although the timing of the bubble is unknown, the plan is positive for Cathay Pacific, which has seen its total passenger traffic reduce by more than 95 percent in the past five months for its Hong Kong-Singapore flights, Lee wrote.
Additionally, Cathay Pacific used to have the largest market share on this route before the pandemic. Jefferies estimates that in the second half of 2019, the airline operated 44 percent of all flights from Hong Kong to Singapore, more than the 38 percent market share held by SIA.
But even as the planned travel bubble may hit Cathay Pacific in the arm, cash burn is likely to rise as well due to route start-up costs.
Its cash consumption rate of around HK $ 1.5 billion to HK $ 2 billion (S $ 263.4 million to S $ 351.2 million) per month is likely to increase when new routes are re-established, considering low initial load factors and start-up costs, Lee said.
And while Jefferies expects the airline’s management to announce the details of its restructuring plans in November, the potential air travel bubble could change parts of these plans. The analyst added that staff reductions at Cathay Pacific would still be unavoidable as passenger traffic is likely to recover slowly.
Jefferies kept his “hold” call on Friday, awaiting details of restructuring plans. It also maintained the target price of HK $ 6.30 on the share based on 0.6 times the value price at future book value, given ongoing losses, the low probability that earnings will recover in the short term and uncertainty about the timing of the reintroduced routes.
Less than a day after the planned Singapore-Hong Kong bubble was announced, the cost of air tickets between cities has already started to rise.
The cheapest price for a return economy seat at SIA to Hong Kong was S $ 558 on Friday morning through the end of December, down from around S $ 400 on Thursday afternoon when the news was announced, Bloomberg reported. . Business class return fares increased from around HK $ 5,000 to HK $ 19,000.
Aside from the proposed travel bubble with Singapore, Hong Kong also has potential markets with 10 other markets: Australia, France, Germany, Japan, Malaysia, New Zealand, South Korea, Switzerland, Thailand and Vietnam.
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