One must identify and understand the relevant factors affecting each company and subsequently value whether a particular company's price under / over or matches its future value before making a decision.
The airline industry in my opinion has surpassed it's boomtime. Once where passengers only have limited options, siding towards service rather than price between the tradeoffs of both, SIA thrived.
However, with the entry of Low Cost Carriers, the monopolistic nature of Full Service Carriers have been threatened. Yes, LCC's won't fully replace FSC's, but now the pie has to be shared among more players. Millennials are going to be the highest contributors to tourism and when one identifies their spending behaviours, one would understand that they would rather spend more on authenticity rather than comfort and service therefore the market that SIA seeks to capture would still be its business travellers.
Fuel prices, given how it is a finite resource, would tend to be on a rising trend, thus this would further increase the expense of airlines. It is seemingly hard for airlines to innovate to stay relevant and competitive over one another.
From a consumer's perspective, passengers usually seek price, loyalty programmes and time slots when selecting flights and that can be achieved by any airline.
SIA may be a good stock for short-term holding i.e. When it reports quarterly pax load increase / tourism in Singapore hitting new highs, but other than that, I would not hold SIA for the long-run.
Caution on SIA due to the recent bushfire in Australia (lower load) and the B737 Max issues/compensation.
We had seen Turkish Airline getting compensated USD 9.4 million each for their B737 Max, but the compensation depends on various factors. Boeing can also offer more discounts on SIA future aircraft orders. The longer this drag, the less optimistic it looks.
I wouldnt recommend SIA because as people say it is a CAPEX heavy and yet revenue competitive industry. While SIA has been able to maintain a profitable main carrier profits, it has upcoming capex of 3 billion which is 20 times higher than its annual profits.
SIA is going to be restricted in giving out dividends and has to recognise a high depreciation cost soon. And it cant raise its revenue at will due to competiiton from qatar and Emirates
I think you need to ask yourself why do you want to invest in SIA. Prices are just a reflection of the underlying business. Did you do your research on SIA, and their valuation? Is it reasonable to you?
Airline industries are known to be cyclical with high CAPEX and super low profit margin. Their ticket prices fluctuates and the cost of maintaining the aircrafts (and even buying new sometimes) creates razor thin margins for them. There isn't any customer loyalty (ask yourself, will you only fly SQ, or would you go for cheaper options if available?) with budget airlines in the mix. I would not invest in any airline companies.
Hi Sze Jie,
We should not invest in stocks based on the price alone. What we should do instead is to analyse the fundamentals of the company to see if the price we pay makes sense for what we are getting.
Warren Buffett once said, "Price is what you pay. Value is what you get", and it rings true here.
Airlines is a poor biz to invest in, heavy capex, fluatuating fuel expenses, low-medium customer loyalty with the explosion of budget airlines & stiff competition from premium airlines. There's a reason its share price remain woefully depressed for years. Do your due diligence