2 days ago, I dumped 2 prominent Asian airline stocks — Singapore Airlines (C6L) on SGX and Cathay Pacific Airways (293) on HKEX. It is a late move on my part due to expectations of possible recovery towards the end of the year. However with the onset of second wave and even third wave for COVID-19 in some countries, I strongly believe that it is a move that is better executed now than never.
Both SIA and Cathay had recent rights issue (Jun and Jul respectively) as part of a rescue plan to stay afloat during this critical period. I had subscribed earlier to SIA rights, to prevent dilution of my holdings and a possible revival of international travel in the latter half of the year. However, in the month of July when Cathay opened up for subscription of its rights, I decided not to go ahead due to the third wave in Hong Kong and internal (HK-China) / external (USA-China) tensions. I foresee these uncontrollable factors to worsen the situation for Cathay.
With little to no leisure travel expected and low level of business travel (meetings could still be largely held virtually), coupled with safe distancing measures within the aircraft (one seat part or even empty row in between) leading to higher ticketing pricing, profits-taking would not be any time soon. Ignoring capital gains, I doubt travel business will pick up to the point of dividends issuance for the next 2 or 3 years.
YTD Charts for SIA and Cathay
Looking at the YTD charts, both have been on a steady downtrend. For investors who feel that these are value-buys or bargains, do be careful of falling for the “too cheap to be ignored” tags. You would probably need a very long time horizon to even see some reasonable returns. The investment amount redeployed in other counters would more than probable see better returns in the same time period or even lesser.
One good point to note is that both Singapore and Hong Kong lacks domestic market demand, or intra-country travel. In comparison the hospitality sector (e.g. hospitality REITs), unlike airline businesses, does not fully depend on business from international travel. From what I observe in Singapore’s context, hotels have the saving grace from government agencies for isolation purposes, companies that required their Malaysian workers to stay in Singapore (due to Malaysian movement control order), and most recently, staycations with the recent relaxation on a number of hotels for leisure.
It was an expensive lesson for me but one that taught me a most important lesson: Don’t let emotions/loyalty get in the way of logical investing.
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