Can Vaccinated Travel Lanes Breathe Life into Singapore Airlines’ Stock?

Aeroplane Reflected in Water
Aeroplane Reflected in Water

As Singapore steps up its vaccination regime, the country is looking to progressively relax more restrictions.

As of 21 August, 78% of the population has been fully vaccinated against COVID-19, while 82% have received at least the first dose of the vaccine.

Based on this progress, the government has introduced vaccination-differentiated border measures for travellers from countries that have either controlled the pandemic well or have a high vaccination percentage in their population.

All countries and regions have been classified based on four distinct categories based on a traveller’s 21-day history before entering Singapore.

This news offers a glimmer of hope for Singapore Airlines Limited (SGX: C6L), or SIA, that the worst of the pandemic may be over.

Last month, it was made clear that quarantine-free travel will be allowed from September for those who have been fully vaccinated, in an attempt to restart the tourism industry.

Along with this differentiated approach, vaccinated travel lanes (VTL) were also established with Germany and Brunei whereby visitors can enter Singapore without serving a stay-home notice from 8 September.

Will this news mean that SIA can finally enjoy some respite from months of border closures?

Can its share price recover to its pre-pandemic high?

Onerous requirements

VTLs may sound attractive, but if one looks deeper, they involve numerous requirements and are fairly onerous.

First off, travellers need to undergo multiple COVID-19 tests while in Singapore.

Also, children under 12, who cannot be vaccinated yet under this scheme, are disallowed from travelling under this scheme.

Because of this, many families with children will be excluded from using the VTLs.

There is also an additional cost for travellers in the form of polymerase chain reaction (PCR) tests that need to be conducted at the airports, with each test costing S$160.

Meanwhile, a pre-departure test within 48 hours of the flight to Singapore is required, in addition to an on-arrival test at Changi Airport, and post-arrival tests on days three and seven, making it four tests in total.

The hassle and extra costs may put people off using the VTLs.

Air travel passes to be issued

Meanwhile, travellers from Hong Kong and Macao can apply for an air travel pass to enter Singapore from 26 August.

This requires them to take a COVID-19 test upon arrival, but they need not serve a stay-home notice.

The new procedure replaces the previously planned air travel bubble between Hong Kong and Singapore due to differing strategies concerning the pandemic.

SIA will be running the flights between Germany and Brunei.

Transport Minister S Iswaran has mentioned that VTLs are being implemented “cautiously”, beginning with just two countries, to allow Singaporeans to learn from the process so that it can, in future, be further expanded and enhanced.

When launched, it should help SIA to improve its depressed load factor, with the airline expecting passenger capacity to reach around 33% of its pre-pandemic level by next month.

Depressed demand could be a new normal

On the flip side, the airline industry could be seeing a structural reduction in corporate demand as businesses adapt to the pandemic.

With the popularity of teleconferencing and virtual meetings, some companies may have permanently reduced their budget for air travel even when borders do eventually open up.

The good news is that SIA is still operating with around 80% of its staff strength compared to pre-pandemic levels.

The carrier had also resumed monthly variable component payments for all Singapore-based staff from 1 August after cost cuts were implemented earlier.

In short, SIA is preparing itself for increased demand for its services as international borders slowly reopen.

While lower overall demand may persist, it’s clear that SIA should enjoy some uplift from the VTLs and air travel passes.

Get Smart: A breath of fresh air, but uncertainties remain

SIA’s share price has jumped by 36% in the last year, buoyed by economic recovery in badly-hit countries and the slow reopening of borders.

Its recent fiscal 2021 full-year results may be underwhelming, but investors can look forward to better numbers ahead as the airline lifts its aircraft utilisation.

The VTLs are a promising development for SIA, while there is also the possibility of the air travel pass system being extended to more countries.

These all come as a breath of fresh air for the beleaguered airline but do note that uncertainties remain as new variants may result in infection rates spiking once more.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

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