Morningstar and OCBC analysts view Singapore Airlines’ stake in Air India positively, despite an expected near-term earnings drag
[SINGAPORE] Shares of flag carrier Singapore Airlines (SIA) fell as much as 3.6 per cent on Friday (Nov 14) after it reported an 82.1 per cent drop in net profit.
The counter fell as low as S$6.41 after the market opened, having closed at S$6.65 on Thursday, before the results were announced. It then recovered to S$6.50 by the midday trading break, before ending the day at S$6.52, down 2 per cent or S$0.13 from its Thursday closing price.
For its second quarter of FY2026 ended Sep 30, SIA posted a net profit of S$52 million, down from S$290 million for the year-ago period.
The group attributed the decline to Air India, in which it holds a 25.1 per cent stake. The Indian flag carrier is undergoing a fleet renewal and cabin retrofit process, helmed by former Scoot CEO Campbell Wilson.
SIA’s quarterly operating profit, which excludes results from associated companies, rose about 23 per cent to S$398 million.
Air India was struck by tragedy in June, when Flight 171 crashed upon take-off from Ahmedabad. Investigations into the fatal accident are ongoing.
The airline is also seeking at least 100 billion rupees (S$1.5 billion) in financial support from owners SIA and Tata Sons, Bloomberg News reported.
At a results briefing on Friday, SIA CEO Goh Choon Phong said his airline has offered its expertise and help to Air India whenever it has been needed and appropriate.
He added that the investment into Air India is “long-term” and that SIA remains “very committed”.
Morningstar’s Asia director of equity research Lorraine Tan said the Air India stake gives SIA access to India’s “fast-growing and underserved aviation market”, which she continues to view “positively” in the medium term.
CGS International (CGSI) in a note on Friday maintained its “reduce” rating on the stock and dropped its price target to S$5.60 from S$6.80.
It pointed to analyst expectations of a “significant” cut in earnings-per-share forecasts, and a potential cash call by Air India.
CGSI analysts noted that SIA’s 25.1 per cent share implied Air India was looking for S$376.5 million from the Singapore flag carrier, out of the reported S$1.5 billion sought in total.
“The sum is modest relative to SIA’s cash and cash equivalents balance of S$9.1 billion as at Sep 30, 2025, (but) we think that SIA will still have to take this into consideration when deciding on the total annual dividend-per-share payouts,” CGSI analysts wrote.
“We reiterate ‘reduce’ due to the wider-than-expected Air India losses, which may be persistent,” they added.
Citi analysts noted that SIA actually experienced stabilising passenger yield and operating cost per available seat kilometre (excluding fuel).
However, they still forecast further downside from Air India’s losses, which could “take a few years to reach break-even”.
They reiterated a “sell” call with a S$6.15 target price, noting that the group’s special dividend of S$0.10 per share, to be paid annually over three financial years, may help soften its share price’s downside.
DBS analyst Jason Sum concurred that SIA’s profitability is likely to remain subdued in the near term due to continued yield pressure, cargo volatility and bottom-line drag from its investment in Air India.
“Given the scale of (Air India’s) restructuring, meaningful profit recovery for Air India will likely take time, weighing on SIA’s earnings through FY2026-2027,” he said.
Sum set a target price of S$6.50 and a “hold” rating.
OCBC analyst Ada Lim set a similar fair value estimate of S$6.40 with a “hold” call.
However, she believes SIA is nearing the “end of the runway for exceptionalism”, given that passenger yields have peaked and are on a moderating trajectory amid intensifying competition.
She also pointed to tariff uncertainty and global growth concerns possibly weighing on travel demand, and causing worse supply chain disruptions.
Not all is negative, though. Sum noted that lower jet fuel prices will continue to support margins – though this would be tempered by sticky cost inflation, excluding fuel.
“Nonetheless, the special dividend package was a positive surprise and reflects the strength of SIA’s core operations and underscores management’s commitment to shareholder returns, which should help support share price,” he added.
Lim expressed a similar sentiment, saying that OCBC remains confident that SIA’s brand proposition, service quality and product innovation will allow it to “navigate the volatility and transition from recovery to growth”.
“In our view, SIA continues to hold long-term value in investors’ portfolios,” she said.
Morningstar’s Tan also described the airline group’s operating performance as “good” and said costs have been well-managed as yields ease.
She forecast a better second-half earnings performance, given Air India’s return to full capacity on Oct 1, routes to new destinations and improved seasonality.
“SIA does not expect further capital injections into Air India beyond the amount committed at this point in time,” she added.
Additional reporting by Tay Peck Gek
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