Cathay's passenger demand fell less than SIA's… CX's pax traffic fell 2%y/y in May versus SIA's 3% drop （parent airline only）。
　　…but passenger utilization fell less for SIA: Cathay expanded passengercapacity by 1% y/y in May while SIA cut capacity by 2% y/y. Consequently,Cathay's passenger load factor fell 2ppts y/y to 84% in May, while SIA's loadfactor fell 1ppt y/y to 73%.
　　Loads fell in all route regions except N & SE Asia for SIA and SE Asiaroutes for Cathay: SIA's loads fell 2ppts/3ppts/4ppts/4ppts y/y on West Asia& Africa （71%）， SW Pacific （75%）， Europe （67%）， and America （76%） routesbutt rose 4ppts y/y on N & SE Asian （75%） routes. In comparison, CX's loadsfell 2ppts/2ppts/2ppts/3ppts/3ppts/5ppts y/y on Europe （83%）， China （78%）， NAmerica （89%）， India Subcontinent & Middle East （83%）， SW Pacific & SAfrica （83%）， NE Asia （76%） but rose 2ppts y/y on SE Asia （85%） routes.
　　Among the SIA's three subsidiary carriers, only Silkair's loads rose y/y:
　　SilkAir's passenger traffic/capacity rose 17%/15% y/y, resulting in 1ppt higherloads y/y at 70%. Scoot's passengers carried surged 52% y/y while passengertraffic/capacity rose 57%/60% y/y, resulting in a load factor of 78%, 2ppts lowery/y. Tigerair's passengers carried and traffic held steady y/y while capacity rose1% y/y, resulting in a load factor of 82%, 1ppt lower y/y.
　　SIA's cargo demand growth beat Cathay's: SIA's cargo traffic rose 5% y/yvs Cathay's 5% fall in May. CLF rose 1ppt y/y for SIA and was steady forCathay at 62% in May. However, yields remain under pressure.
　　Capacity growth similar for both HK and SG near term: Airlines' passengercapacity （ASK） in the SG market is expected to rise c.6% y/y in 2H16 based oncurrent flight schedules. SIA's capacity is expected to remain flat y/y. HKmarket's capacity is expected to rise c.5% y/y in 2H16 with Cathay's capacityexpected to grow at only c.2% y/y （source: Flightglobal, JPM estimates）。
　　Recent news: 1） SIA's stake in Virgin Australia has fallen to 20.1% from23.1% following HNA's investment in VAH and Air NZ's stake sale toNanshan Group. 2） SIA established a new holding company called BudgetAviation Holdings to manage Scoot and Tigerair, headed by Mr Lee Lik Hsin.
　　3） SIA plans to start non-stop SIN-San Francisco flights from Oct 23 usingA350-900 aircraft, which we view positively as they are expected to commandhigher yields. 4） India cleared the Civil Aviation Policy removing therequirement for a domestic airline to operate for minimum 5 years before flyingabroad but the requirement of minimum 20 aircraft （or 20% of total aircraftwhichever is higher） to be deployed on domestic routes still holds. See AdityaMakharia's report here. This is positive for Vistara which is 49% owned by SIA.
　　5） Cathay plans to order stretched version of A350s to serve destinations likeMiami non-stop from HK. （source: companies, BB）。
　　CX is trading at 0.85x P/B, a 30% discount to its historical avg valuation（and provides 173% potential upside to peak）。 However, CX's higher level offuel hedging implies that its earnings and stock performance could lag SIA's iffuel prices stay low/fall which is why it is not our top airline pick. SIA'svaluations are at a 8% premium to CX vs an historical discount of 10%.