Broad quarantine-free travel coming up?
? Reiterate Add as Singapore will reinstate full VTL capacity by 4 Mar, expand VTL lanes, and make it cheaper for travellers to enter Singapore.
? Our TP of S$5.86 is unchanged, still based on P/BV of 1.06x (+1 s.d.), on our adjusted FY23F BVPS.
Singapore reinstates VTL quota, expands VTL countries
The Singapore government yesterday announced a series of measures to open up its borders further. From 17 Feb to 4 Mar 2022, Singapore will progressively reinstate 100% of the VTL capacity of 15,000 daily passengers, after suspending new VTL sales between 23 Dec 2021 and 20 Jan 2022 due to the emergence of the Omicron variant, and after halving the daily VTL capacity from 21 Jan until 16 Feb 2022. From 25 Feb 2022, the list of VTL countries from which travellers arriving into Singapore do not need to be quarantined on arrival will be expanded to Saudi Arabia, Qatar and the UAE, and to all cities in Thailand rather than only Bangkok. New VTLs will begin on 4 Mar for the Philippines and Israel. In addition, Malaysia said that it was in advanced discussions with Singapore to extend VTL travel beyond KL to include Penang and Kota Kinabalu. Furthermore, the cost of travel under the VTL scheme will be reduced and the convenience increased; from 22 Feb, VTL arrivals and arrivals from Category I countries
no longer have to undergo an on-arrival PCR test, which costs S$125/pax, but only have to undergo one supervised ART test within 24 hours of arrival, which only costs S$15/pax. VTL travellers no longer have to undergo six days of unsupervised ART tests after arrival (if they want to leave their place of stay), and instead only have to undergo one supervised ART test. Unvaccinated travellers or travellers on non-VTL flights are subject to a 7-day quarantine at their own accommodation from 22 Feb onwards, shortened from 10 days at a dedicated government facility for Category IV travellers. For travellers transiting or transferring through Changi Airport, the requirement for a pre-departure Covid-19 test will be waived from 22 Feb, which will enhance the attractiveness of Changi as a transfer/transit hub, and benefit the home carrier, SIA.
SIA may see substantial expansion in passengers in FY3/23F
For FY3/22F, we estimate that SIA group’s ASK capacity will average 36% of the preCovid-19 capacity, rising to an average of 74% in FY23F, as shown below. Our forecast for FY23F is based on our confidence that the Singapore government will eventually introduce quarantine-free travel into Singapore for fully-vaccinated travellers from around the globe, which essentially expands the VTL scheme globally. This will be the key rerating catalyst for the stock. Meanwhile, cargo demand continues to be strong, supporting SIA’s revenues while waiting for the passenger side to recover more fully. The key downside risk is higher oil prices, with jet fuel now at US$105/bbl vs. our FY23F estimate of US$82/bbl, with SIA 40% hedged for FY23F. But with strong VTL demand and with Dec 2021 ASK capacity in Asia at only 18% of the pre-pandemic level, SIA may be able to command a price premium to offset higher fuel prices.