SINGAPORE (Nov 2): Maybank Kim Eng is maintaining its “hold” ratings for Singapore Airlines group with a target price of S$9.70, ahead of its results release on Thursday.

Analyst Mohshin Aziz notes that the SIA’s long-haul traffic is “under stress, due to overcapacity and competitive pressures”.

“Load factors have plummeted, especially to Europe and the Americas, which is consistent with statements made by other airlines in the region,” said Aziz in a note on Monday, adding that passenger capacity had risen by 3.5% while traffic fell 0.4% resulting in a 3.2-percentage point dip in load factor to 79.9%.

For 2QFY16, overall passenger and cargo load factors fell 1.5%, along with lower yields.

Maybank is forecasting SIA’s core earnings to reach S$193 million for the quarter, with the half year earnings of S$297 million achieving 38% of its full year forecast, which is “below expectation”.

Full-year earnings forecasts were also cut by 15.3% to S$662 million for FY17; 18.4% to S$670 million for FY18; and 19.1% to S$722 million for FY19.

As Aziz explainss it, SIA had deployed more capacity than the market was able to absorb. “This will have a negative impact on yields,” he said.

Furthermore, he remains unconvinced about the management’s strategy to launch ultra-long haul flights to the US, indicating that the move is “not feasible” and “value destructing”.

“Also, we are miffed with SIA’s low seat density configuration on its new aircraft as this raises the cost per seat at a time when SIA is struggling to raise its unit revenues. Overall, we think the mismatch between unit revenue and unit cost will worsen over time,” he concludes.

Shares of SIA were trading 6 Singaporean cents lower at S$10.10 at around 3 p.m. today.