Singapore Airlines: the Best in the Worst Business
- Tiago Q T
- Feb 24
- 6 min read
Firstly, airline stocks are bad investments!
Below is how a handful of major airlines - chosen with a ton of survivorship bias - have performed in the last 10 years. If you randomly picked a few, you’d be lucky to break even. Meanwhile, many broad global equity indices have easily doubled in value during the same period. Sure, the pandemic hit aviation harder than most industries, but even the five-year stretch before COVID-19 wasn’t stellar for airlines.
And I’m not cherry-picking a bad decade just to make a point. Let me bring in someone with a bit more historical business knowledge - here is Warren Buffett in his 2007 Annual Letter talking about the industry:
"The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines... The airline industry’s demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit [...] And I, to my shame, participated in this foolishness."
And just in case you missed it - despite those harsh words, he gave the industry another shot right before the pandemic. (Lol, one of us!). And here he is again at the 2020 general meeting:
"Our airline position was a mistake."
So, even the investing GOAT couldn't make it work. Yet here we are, considering one anyway. Why? Perhaps you want (a masochistic) exposure to the travel macro trend, or you’ve got a long/short strategy in mind and need a bright spot in the sector. Whatever the reason, let’s see why Singapore Airlines (SIA) might be that rare, semi-contrarian pick.
An Airline with a Real Brand
One of the core problems with airlines - beyond the massive CAPEX requirements for planes, maintenance, and operations - is that passengers typically don’t care which carrier they fly with, as long as it’s cheap and reliable. That’s why no-frills champion Ryanair fully embraced the "commoditisation" of airplane seats, slashing costs and optional services to the bone. From a pure stock perspective, Ryanair has arguably been the best airline investment of the last few decades - up 45× since its 1997 IPO.
But even Ryanair's strategy is not future-proof. Most legacy carriers have launched low-cost subsidiaries, intensifying competition in that segment - in early 2025, Ryanair's stock 10-year rolling cumulative return hit a low of "just" 75%, still considerably above the rest of the industry but a far cry from the 200%+ gains it had seen throughout its history. So what if brand loyalty does start to matter more in the airline game? Which carrier could capitalise on that trend?
Enter Singapore Airlines, consistently lauded as one of the top airlines worldwide. In fact, for more than a decade, the Skytrax “Airline of the Year” award has felt a bit like the Messi vs. CR7 debate, bouncing between Singapore Airlines and Qatar Airways. Since we can’t invest in fully state-owned Qatar Airways, SIA is the best publicly available option in that category. As Skytrax points out:
“Singapore Airlines’ success has been fueled by its dedication to customer service… [It offers] a state-of-the-art in-flight entertainment system… and gourmet meals in all classes of service.”
Additionally, SIA has built one of the most recognisable airline marketing campaigns of all time with its “Singapore Girl” cabin crew uniform - a staple for over 50 years.
While the parent brand leans premium, SIA also has a stake in the low-cost space through Scoot, which accounts for about 30% of the group’s passengers. And even Scoot manages to build brand equity (e.g., flight attendants called “Scooties,” Pokémon flight liveries, etc.).
Government-Backed, But Not a Dinosaur
One of Singapore Airlines’ unique advantages is its quasi-national-asset status. Yet it remains (partially) privately owned, balancing commercial discipline and potential state support in a crisis.
A National Asset
If a major U.S. airline - given its highly competitive and decentralised market with little government intervention - were to fail, the market would likely absorb the impact through consolidation or new entrants. In Singapore - a hub-centric nation - the government is highly motivated to prevent SIA from going under because it’s so intertwined with tourism and business travel. Case in point: when the pandemic hit, SIA received a S$15 billion capital injection underwritten by Temasek - one of Singapore’s sovereign wealth funds and SIA's largest shareholder.
Commercial Efficiency
But don’t confuse government involvement with a bloated or subsidy-ridden relic. Plenty of quasi-state-owned disasters exist (as a Brazilian, I could name quite a few). Singapore’s approach is famously pro-business, and SIA has to earn its keep. For example, during SIA's decades-long history, its first-ever full year net loss only happened in 2020 during the biggest pandemic of the last 100 years. And already by 2023 the company had rebounded to its best year ever, with record-breaking operating and net profits. Against the world’s biggest airlines, its operating margin trailed only Ryanair.
Expanding in India
Another strong plus is SIA’s exposure to the surging Indian aviation market. In 2015, SIA teamed with Tata Sons to launch Vistara, which later became India’s 3rd-largest airline by passengers. In 2022, Tata acquired Air India (the 2nd-largest), and by late 2024, Air India and Vistara merged.
Post-merger, Singapore Airlines now holds a 25.1% stake in the enlarged Air India Group, which controls around one-quarter of India’s passenger market. If you factor in IndiGo's two thirds share of the market, that means only two carriers effectively control ~90% of one of the world’s fastest-growing air travel markets. The notorious bureaucracy and regulatory barriers in India make it tough for new entrants, so SIA is well-positioned in a near-duopoly.
India's number of air passengers has been increasing at a nearly 10% per year rate over the last few years, with currently about 220 million air trips happening annually (with about 160 million being in domestic flights). With a population rivaling China’s (which sees closer to 700+ million annual trips), there’s still huge upside.
Some quick napkin math: a 25% stake in a 25% market share of 700 million passengers would mean SIA’s stake alone could exceed its current total passenger count. Of course, as always in aviation - just imagine the CAPEX nightmare to get there.
Changi’s Terminal 5: Future-Proofing the Hub
Construction on Changi Airport’s Terminal 5 is set to begin soon, aiming to add capacity for another 50 million passengers per year by the mid-2030s (on top of the current 90 million), and connect Singapore to 200 cities (from the current 150). Changi routinely competes with Doha’s airport for the “best in the world” title, and expanding it to this extent means:
SIA won’t be bottlenecked by hub capacity anytime soon.
Being based at a top-tier airport that shares the same strategic priorities is better than the alternative.
But... It’s Still an Airline…
For all these positives, SIA’s share price sits around where it was 25 years ago. And it’s not a case of multiple compression; earnings per share are actually lower than in the early 2000s. Also, debt-to-equity ratio climbed from under 0.10 in the mid-2010s to about 0.87 (as of recent financial data). Even after mandatory convertible bonds from the pandemic period were fully converted, there’s still more leverage than in years past. That’s the airline trap: large capital expenditures, razor-thin margins (outside of top performers), and exposure to every macro event under the sun - fuel prices, pandemics, recessions, terror threats, you name it.
Conclusion
So, here’s a summary of why I am (cautiously) optimistic about Singapore Airlines:
Brand Premium: SIA consistently ranks among the best carriers in the world, allowing for some pricing power.
Potential Government Backstop: As a strategic asset, SIA benefits from a quasi-safety net if times get rough.
Still Profits-Driven: Despite state involvement, Singapore generally prioritizes commercial efficiency.
Healthy Operating Margins: SIA’s FY2023 operating margin trailed only Ryanair’s among the major listed airlines.
Stake in India: A 25.1% share in the newly merged Air India Group taps into one of the largest and fastest-growing aviation markets on the planet.
Changi’s Future Growth: SIA’s home base is upgrading to handle far more passengers, securing long-term capacity.
Bear case? Well, it’s still an airline. The sector’s track record is atrocious. Even Warren Buffett, who once dismissed airlines as a “bottomless pit” for capital, had a relapse - and regretted it.
Still, I decided to buy a little SIA a few months ago at S$6.25/share - just enough to be 0.8% of my portfolio. But ask me in a few years, and let's see if I have to WB it with a classic:
“My airline position was a mistake.”
Disclaimer
The views expressed here are for informational purposes only and are based on publicly available data. This is not investment advice. Please do your own research or consult a professional before making any investment decisions.
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