To The Moon

For the past two years, $Singapore Airlines(C6L.SG)$ has been the ultimate reopening trade, posting a string of mind-blowing, record-breaking profits. It seemed the airline could do no wrong.

But the party is over.

That incredible surge was fueled by a once-in-a-generation phenomenon: "revenge travel." A world of locked-down passengers burst out, willing to pay any price for a ticket, while airline capacity was still crippled.

Now, that pent-up demand is exhausted. Travel is normalizing. Competitors from the Middle East and China are back online.

The upcoming earnings report will be the most important in years. It’s the first "clean" look at the new reality. The question is: Did SIA use its record cash haul to build a fortress, or was this all just a temporary, sugar-fueled high?

WHAT: The End of an Era

The "What" is the simple fact of normalization. The data is clear:

• Capacity is Back: Global airline capacity is finally back to, or even above, pre-pandemic levels. The days of SIA being the "only option" are gone.

• Fares are Softening: The eye-watering $2,000+ economy tickets to Europe are fading. While still high, ticket prices are under pressure for the first time in years.

• Passenger Loads are Easing: Load factors are no longer at an unsustainable 95-100%. They are drifting back toward a "normal" (and still healthy) 85-90%.

This isn't a crisis. It's a return to reality. The problem is that the stock price and market expectations are still anchored to the "crisis-level" profits.

WHY: The Great Margin Squeeze

This new reality creates a "pincer movement" that is set to squeeze SIA's record-high profit margins. This is the core bear case for the upcoming earnings.

• Headwind 1: Revenue is Normalizing

  The single most important metric to watch is Passenger Yield (essentially, the average price paid per passenger). This number is almost guaranteed to fall, which means revenue will come under pressure.

• Headwind 2: Costs Remain Stubbornly High

  While revenue is falling, costs are not.

• Fuel: Jet fuel prices remain elevated and volatile.

• Labor: SIA (and $SATS(S58.SG)$) had to hire aggressively to meet the "revenge travel" surge, and those new labor costs are now locked in.

• Competition: SIA will have to spend more on marketing and promotions to defend its market share.

The bear case is simple: Falling revenue + High costs = A sharp, painful collapse in profitability.

HOW: SIA's Three Lines of Defense

This is not a story of survival. SIA is in its strongest financial position ever. The question is purely about profitability.

I believe SIA has three powerful defenses that the "peak earnings" bears are ignoring.

• Defense 1: The Premium Brand (Pricing Power)

  SIA is not a budget carrier. Its core business is built on premium economy, business class, and first class. These customers are far less price-sensitive. While economy fares will soften, SIA's ability to command a premium for its service gives it a pricing-power "moat" that other airlines simply do not have.

• Defense 2: The Cargo Fortress

  This is the unsung hero. The pandemic structurally changed the air cargo market. While rates are down from their absurd peaks, the Cargo Yield is expected to remain significantly higher than it was pre-COVID. This division provides a robust, high-margin revenue floor that is completely separate from passenger drama.

• Defense 3: The Fortress Balance Sheet

  Management used its "revenge travel" windfall brilliantly. The company is flush with cash. They have paid down debt, shored up the balance sheet, and have a massive war chest. They have the financial firepower to withstand any price war and invest in new, efficient aircraft while their competitors struggle.

My Take: Bull vs. Bear Scenarios

The market is bracing for a "disappointment" because they are comparing this quarter to the best quarter in history. This is a mistake.

The real question is how the "new normal" profits compare to the pre-COVID era.

Here are the bull and bear scenarios I'm watching for in this earnings report:

My verdict: Profits have peaked. That is an indisputable fact. We will never see the "revenge travel" margins again.

However, the "bear case" of a profit collapse is equally wrong. SIA has emerged from the pandemic as a leaner, stronger company with a more dominant brand and a more profitable cargo arm. The "new normal" for SIA's profits will be structurally higher than the old pre-COVID normal.

I am not a buyer heading into the earnings report. The risk of a "sell the news" event is too high as the market gets its first look at "lower" (but still strong) profits.

The time to buy will be after this report, when the market overreacts to the "bad news" of normalization. That will be the time to build a long-term position in a best-in-class global airline.

$SIAEC(S59.SG)$ $Straits Times Index(STI.SI)$

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