Analysts advise Asian air investors to be selective

SMALL gains across the Asian stock markets for air carriers could signal traction in the year ahead driven by passenger demand reversing 2010 trends but selectivity is key with price movement, say strategists.

Share price variations for Asia airlines is vast with Singapore Airlines up 7.9 per cent to date and Qantas at 4.5 per cent against rallying China Airlines 107 per cent and Eva Airways at 101 per cent.

Analysts forecast for the sector point to a switch from air freight to ocean with freight rates returning to normal with inventories built-up less need for time-sensitive cargo or technology products because of maturation in the sector.

UBS analysts warn against holding too much on third quarter results rallying. "While we are positive on the 2011 outlook, the share price rally in the last quarter has placed valuations at their normalised peaks and above the peer level," said UBS analysts in a MarketWatch report.

Morgan Stanley said relative share price performance is forecast heading into 2011 with the exceptional growth in cargo seen by Korean Air Lines Co Ltd (30 per cent increase) Asiana Airlines Inc (171 per cent), Eva Airways and China Airlines likely to be replaced by passenger demand.

Although it sees Singapore Airlines and Qantas as overweight it is encouraged by premium yield stabilising with positive growth forecast from second quarter of this year enough to suggest investors build portfolio of "quality airlines that have attractive valuations and high exposure to the premium passenger."

Royal Bank of Scotland analysts disagree with the robust forecast of passenger growth for Singapore Airlines given the increased competition in the region from Middle Eastern airlines and legacy carriers Qantas and Deutsche Lufthansa upping capacity and services.
(Source:www.schednet.com)