Qantas-Emirates tie-up holds negatives for SIA: Citi

Stock Name: SIA
Company Name: SINGAPORE AIRLINES LTD

Research House: Citigroup

Price Call: SELL

Target Price: 9.40

The Qantas-Emirates tie-up offers two big negatives and one small positive for Singapore Airlines, Citigroup says.

The tie-up, following Virgin Australia and Etihad’s recent closer tie-up, may reduce Singapore’s attractiveness as a Kangaroo-route stopover hub, it says.

It notes Qantas currently flies from Australia to London via Singapore, depending on its British Airways code-share agreement for onward connection to other European cities; the new tie-up ends the QF-BA partnership, likely leading Kangaroo route traffic to shift to Dubai, opening up 31 European destinations with one stopover vs Virgin Australia-Etihad’s 15 destinations, SIA’s 14 and QF-BA’s two, it says.

In addition, Qantas may also free up more resources to devote to Asia by increasing its Jetstar commitment and increasing connectivity between Australia and Singapore, it says.

But the negative impact on SIA may be offset by less competition on direct Singapore-London flights as Qantas is likely to reduce or scrap its direct flight, it says.

“(SIA) appears to have been well-prepared by launching a fourth direct Singapore-London flight in two weeks’ time.” It reiterates its conviction Sell and $9.40 target. The stock is up 0.5% at $10.5.