Singapore Airlines (SIA) has released Feb. traffic statistics. Year-on-year comparisons (yoy) have been distorted by the timing of Chinese New Year and the 2008 leap year. Passenger traffic (RPKs) was down 17% yoy on an 8.5% capacity reduction; load factor was down 7.1 percentage points (pp). All route regions saw material load factor declines (Europe, West Asia & Americas the worst). SIA’s closest peer, Cathay Pacific, recorded a 5% traffic fall in Feb. (load factor ↓ 1.0pp).

SIA also underperformed the Asian results of European peers: British Airways saw a 19% decline in traffic (load factor ↓ 2.4pp); Lufthansa’s traffic was down 8% (load factor↓ 3.2pp) while Air France saw an 8% traffic decline. The weak SIA performance may reflect an attempt to hold fares above ‘market levels’ and goes someway to explain the aggressive capacity reduction announced last month.

Cargo traffic was down 15% (yoy) which was similar to the declines in January (-14%) and slightly better than December (-19%). This adds further weight to the view that cargo volumes (not revenue) have found ‘a floor’ following the unprecedented deterioration during Q408 and early Q109.

These results are likely to intensify short-term concerns but our estimates already assume yield pressure intensifies (yields ↓10% in FY10). In our view, the strength of SIA’s balance sheet, network & product ensure SIA is well positioned long-run. Our S$14 PT is based on VCAM.