Singapore’s planned new airport tax to fund the Terminal 5 expansion may dent full-services carriers, such as Singapore Airlines, Daiwa said in a note dated Thursday.
Starting from July 1, passengers will have to pay an additional S$13.30 in departure charges, which includes a new tax levied to support the airport expansion, Daiwa noted. At the same time, Changi Airport Group will increase aeronautical charges for both passengers and airlines over the next six years to fund the expansion and upgrading projects, the note added. For airlines, there will be increased landing and parkching charges, also starting from July 1, it noted.
”We see the higher airport taxes as likely having a more pronounced negative impact on full service carriers vs. Low cost carriers on our belief that the latter will be able to pass on the bulk of the impact to passengers in the form of higher ticket prices,” Daiwa said.
SIA may need to absorb charges
“Full service carriers in Singapore, such as SIA, which is currently under pressure due to declining yields, will likely have to absorb the higher landing and parking charges, resulting in overall operation margin compression, in our view,” Daiwa said.
But it kept a positive view of the Singapore aviation sector on the view the higher taxes were unlikely to derail the steady flow of traffic into the city-state, nor would it affect its status as the premier aviation hub in the region, Daiwa said.
However, it said it was cautious of the impact on Singapore Airlines’ margins. It rates the stock at Hold.
It said aviation service providers under its coverage, such as SATS, STE and SIAEC, weren’t directly impacted by the additional airport charges, but could be indirectly affected if airlines try to cut costs if they aren’t able to pass the higher charges on to passengers.
It rates SATS and SAIEC at Outperform and STE at Buy.