Singapore Aviation Sector Faces Fuel Price Surge and Margin Pressure September 25, 2026

Brief Overview

In August 2026, Singapore’s aviation sector experienced significant declines, with SATS dropping 18.5%, CAO falling 16.1%, SIA declining 11.8%, and SIA Engineering decreasing 1.3%. The sector faces renewed margin pressure as jet fuel prices surged above US$160 per barrel due to escalating Middle East tensions. Despite these challenges, APAC carriers’ net margins are forecast to compress from 3.5% in 2025 to 2.1% in 2026, whilst the previously supportive cargo yield tailwind is expected to fade as capacity normalises.

Investment Positives

Singapore Airlines demonstrated remarkable resilience compared to industry peers, posting a net margin of -1.33% in 2Q26 versus the broader full-service carrier average of -6.78%. This outperformance underscores the relative benefits of SIA’s strong fuel-hedging position and diversified network mix, even as the broader sector became loss-making.

SIA Engineering benefits from underlying MRO demand, which helped limit its decline to just 1.3%. The company’s largest customer, Singapore Airlines, continues working through its order pipeline and receiving aircraft deliveries despite industry-wide OEM backlogs. SIA’s fleet is aging, with average fleet age reaching 7 years 9 months as of FY26, whilst the 777-300ER and 747-400F fleets are the oldest, likely requiring increased heavy checks and maintenance work going forward.

Air cargo markets present mixed opportunities, with APAC-to-US volumes growing at double digits driven by AI-related demand. Export volumes from the Middle East and South Asia continue growing year-on-year, indicating resilient underlying demand, whilst pricing remains sticky with global blended rates holding in the $2.95-2.97/kg range.

Challenges

The primary concern is the renewed jet fuel price shock, with Singapore jet fuel climbing back above US$160 per barrel and crack spreads widening dramatically from around US$35 to over US$60 per barrel. This widening has eroded the value of Brent-based fuel hedges, leaving Brent-hedged carriers less protected than previously anticipated.

Currency impacts vary significantly across markets, with Japan experiencing a 173% increase in local-currency fuel costs due to yen weakness, whilst China saw costs rise 132% despite renminbi strength. Air cargo rates face normalisation pressure as airlines restore capacity, threatening the cargo yield tailwind that previously cushioned earnings.

The EU’s removal of de minimis exemptions continues dragging cargo volumes, with Hong Kong-to-Europe volumes down approximately 35% year-on-year and China-to-Europe volumes declining 5-8%. Middle East capacity disruptions, whilst benefiting some routes, highlight ongoing geopolitical risks.

Outlook

Global passenger traffic growth remains modest at 0.2% year-on-year, affected by US-Iran tensions. Air cargo rates are expected to normalise as capacity is restored, particularly as Middle East carriers’ networks, which account for around 80% of India-to-Europe capacity, remain disrupted. The combined Boeing and Airbus backlog reached 16,038 aircraft as of 2Q26, up 6% year-on-year.

Recommendation & Target Price

Phillip Securities Research maintains a NEUTRAL stance on air transportation amid the renewal of the US-Iran conflict. The report indicates that near-term stabilisation of jet fuel prices and crack spreads is unlikely given ongoing Middle East tensions.

Frequently Asked Questions

Q: What caused the aviation sector decline in August 2026?

A: The broad-based decline coincided with renewed Middle East tensions and jet fuel prices surging above US$160 per barrel, with SATS and CAO experiencing steeper losses due to margin pressure concerns and higher fuel cost sensitivity.

Q: How is Singapore Airlines performing relative to competitors?

A: SIA notably outperformed the full-service carrier average in 2Q26, posting a net margin of -1.33% compared to -6.78% for the broader sector, benefiting from its hedging position and network mix.

Q: What are the main drivers of margin pressure?

A: Margin pressure is driven mainly by renewed jet fuel shock, with APAC carriers' net margin forecast falling from 3.5% in 2025 to 2.1% in 2026, compounded by widening crack spreads eroding Brent-based hedge values.

Q: How are different regions affected by fuel cost increases?

A: Currency movements create varying impacts: Japan saw 173% increases due to yen weakness, China experienced 132% rises despite renminbi strength, whilst Brazil and Mexico limited increases to around 86% through currency appreciation.

Q: What is happening with air cargo markets?

A: Air cargo rates are expected to normalise as capacity restores, though APAC-to-US volumes grow at double digits driven by AI demand. However, EU de minimis removal drags volumes, with Hong Kong-to-Europe down 35% and China-to-Europe down 5-8%.

Q: What maintenance opportunities exist for SIA Engineering?

A: SIA's aging fleet, with average age reaching 7 years 9 months, presents MRO opportunities. The 777-300ER and 747-400F fleets are oldest and likely require the most heavy checks and maintenance work.

Q: What is the current investment recommendation?

A: Phillip Securities Research maintains a NEUTRAL stance on air transportation, citing ongoing US-Iran conflict and unlikely near-term stabilisation of fuel prices and crack spreads.

This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.

Disclaimer
These commentaries are intended for general circulation and do not have regard to the specific investment objectives, financial situation and particular needs of any person. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. You should seek advice from a financial adviser regarding the suitability of any investment product(s) mentioned herein, taking into account your specific investment objectives, financial situation or particular needs, before making a commitment to invest in such products.

Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of units in any fund and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance.

Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries.

The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. The information provided in these commentaries may contain optimistic statements regarding future events or future financial performance of countries, markets or companies. You must make your own financial assessment of the relevance, accuracy and adequacy of the information provided in these commentaries.

Views and any strategies described in these commentaries may not be suitable for all investors. Opinions expressed herein may differ from the opinions expressed by other units of PSPL or its connected persons and associates. Any reference to or discussion of investment products or commodities in these commentaries is purely for illustrative purposes only and must not be construed as a recommendation, an offer or solicitation for the subscription, purchase or sale of the investment products or commodities mentioned.

This advertisement has not been reviewed by the Monetary Authority of Singapore.