Sector Performance and Recent Developments
Singapore’s air transport sector delivered steady performance in February 2026, with China Aviation Oil leading gains at 14.1%, followed by Singapore Airlines at 12.9%, SIA Engineering at 5.7%, and SATS at 2.6%. China Aviation Oil’s outperformance was attributed to better-than-expected second-half results, with net profit surging 68.3% year-on-year.
Scoot demonstrated robust operational performance during February, benefiting from the low-cost carrier advantage during the Chinese New Year holiday travel surge. The airline achieved a 19.7% year-on-year increase in passenger traffic for February 2026, with year-to-date growth reaching 16.2%. Singapore Airlines’ cargo operations also showed strength, with cargo carried growing 9.4% year-on-year, accelerating from 2.6% growth in February 2025, despite marginally reduced cargo capacity.
Fuel Cost Pressures and Regional Conflict Impact
The escalating Iran conflict has created significant headwinds for the aviation sector, with jet fuel prices spiking approximately 100%. Airlines face dual pressures from unhedged fuel exposure and widening crack spreads, which increase costs even for carriers hedging on Brent crude. The Asia Tapis Crude crack spread has surged fivefold, particularly challenging given that jet fuel represents roughly 30% of operating revenue for airlines.
Many Asian carriers, including Cathay Pacific, hedge only on Brent crude, exposing them to fuel price volatility from widening crack spreads that have increased more than fivefold from US$8.2 pre-conflict to US$57.3 by end-March 2026. Regional carriers have responded by raising fuel surcharges by approximately 30%, with Singapore Airlines similarly increasing fares across both full-service and low-cost operations.
Investment Recommendations and Outlook
Phillip Securities Research maintains differentiated ratings across the sector. Singapore Airlines holds a NEUTRAL rating with a S$7.00 target price, benefiting from its dual-hedge structure on both Brent crude and jet fuel, providing better insulation than regional peers. The airline has strategically increased Singapore-London Gatwick frequency from three to ten times weekly to capture traffic rerouted from Gulf hubs.
SATS receives a BUY rating with a S$4.44 target price, expected to remain resilient despite Middle East airspace closures affecting gateway services revenue by approximately 3%. China Aviation Oil maintains a BUY rating at S$2.53 target price, while SIA Engineering carries an ACCUMULATE recommendation with a S$4.14 target price.
Frequently Asked Questions
Q: How did Singapore’s air transport sector perform in February 2026?
A: The sector delivered steady performance, with China Aviation Oil leading at 14.1% gains, followed by Singapore Airlines at 12.9%, SIA Engineering at 5.7%, and SATS at 2.6%. China Aviation Oil outperformed due to better-than-expected second-half results with net profit up 68.3% year-on-year.
Q: What impact has the Iran conflict had on fuel costs?
A: The conflict has caused jet fuel prices to spike approximately 100%, affecting airlines through unhedged fuel exposure and widening crack spreads. The Asia Tapis Crude crack spread has surged more than fivefold from US$8.2 pre-conflict to US$57.3 by end-March 2026.
Q: How are airlines responding to increased fuel costs?
A: Regional carriers such as Cathay Pacific and Philippine Airlines have raised fuel surcharges by approximately 30%. Singapore Airlines has similarly increased fares across both its full-service and low-cost operations to offset rising fuel costs.
Q: What is Singapore Airlines’ fuel hedging strategy?
A: Unlike many Asian carriers that hedge only on Brent crude, Singapore Airlines hedges on both Brent crude and jet fuel. As of November 2025, the group had 38% hedged on jet fuel and 9% on Brent for Q4 FY25/26, providing better protection from near-term price volatility.
Q: Which companies receive BUY recommendations and why?
A: SATS receives a BUY rating with S$4.44 target price due to expected resilience to Middle East airspace closures, with potential offsets from rerouted traffic through Changi. China Aviation Oil maintains a BUY rating at S$2.53 target price, with its core jet fuel supply business remaining intact despite potential constraints on SAF trading.
Q: How might the conflict affect different types of carriers?
A: Non-essential air travel demand is expected to taper, affecting low-cost carriers such as Scoot, HK Express, and AirAsia. Full-service carriers in Southeast Asia will benefit from rerouting of Europe-bound traffic away from Gulf transit hubs, with Singapore Airlines and Cathay Pacific already adding UK capacity.
Q: How does Singapore’s sustainable aviation fuel levy decision impact competitiveness?
A: Singapore’s decision to delay its sustainable aviation fuel levy to 2027 preserves Changi’s cost competitiveness as a transit hub, avoiding an additional cost layer for international carriers already subject to European Emissions Trading Scheme tax on departure.
This article has been auto-generated using AI tools. It is based on a report by a Phillip Securities Research analyst.
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