SINGAPORE (June 3): UOB Kay Hian is maintaining its “underweight” call for the aviation sector amid continued weakness in tourist arrivals despite Changi Airport Group launching a series of initiatives.

In a report out today, UOB notes that tourist arrivals have fallen 5.9% since the start of the year.

In particular, the top source markets of Greater China and Indonesia fell 2.9% and 22.7% respectively.

“CAG’s rebates and reductions in aeronautical charges should lead to lower opex and potentially stimulate demand,” said UOB analyst K Ajith.

Among the aviation stocks covered which included ST Engineering and SIA Engineering, Ajith said SATS, Tigerair and SIA will be the primary beneficiary of these moves.

Specifically, CAG has lowered the passenger service charges for transit and transfer passengers from $9.00 to $3.00 from 1 May.

Tigerair will be the primary beneficiary of such a move as the savings amounts to about 5% of its average ticket price, said Ajith, which it will theoretically be able to pass on to customers.

CAG has also extended landing fee rebates for long-haul flights till Mar 17 and offered a further 5% discount on landing fees for aircraft weighing over 360 tonnes.

The move is aimed at encouraging airlines to stop over at Singapore, while transiting to Australia, Europe or South East Asia.

SIA will be the primary beneficiary as it handles wide-bodied aircraft like the A380s and landing fees account for 5% of opex, said Ajith.

In an effort to boost Chinese visitor arrivals to Singapore, the authorities have offered a multiple journey visa for up to 10 years, effective 1 June.

“SIA flies to the three primary hubs in China and will thus be the primary beneficiary,” said the analyst.

Effective 1 May, CAG is also offering a 20% rebate on licensing fees on ground handling and inflight catering, which could lead up to $16 million in cost savings.

This is likely to boost SATS’ margins, said the analyst.

As at 12:18 p.m., SATS is up 1 cent at $3.39. SIA is up 4 cents to $11.05 and Tigerair is up 0.5 cent at 31 cents.

SIA Engineering is up 1 cent to $3.91 while ST Engineering is down 2 cents to $3.37.

SATS, SIA and SIA Engineering are trading CD today.