BUY OR SELL-Asian airlines: back in business or due for a dip?

* Cathay, Singapore Air shares flying high on recovery
hopes

* Airlines reporting improving load factors

* Yields, premium segment remain a concern
(For other Reuters BUY OR SELL items, click [BUYSELL/]

By Nerilyn Tenorio

HONG KONG, Oct 8 (Reuters) - Asia's two leading airlines,
Cathay Pacific (0293.HK) and Singapore Airlines (SIAL.SI), have
sprung back to life after a year-long slump as the December
peak holiday season nears.

Shares have bounced strongly and the pair have seen their
best load factors of the year in recent weeks, as improving
demand and earlier cuts in capacity mean planes are flying
fuller.

However, yields remain low with discounted fares needed to
keep drawing passengers and little sign of a recovery in sales
of high-priced business and first-class tickets.

FLYING ONCE MORE

Cathay Pacific shares jumped a combined 9 percent on
Tuesday and Wednesday as the market welcomed CEO Tony Tyler's
remark the airline posted its best passenger load so far this
year in the last week of September. [ID:nSEO107656]

Despite slightly outpacing the benchmark index's 47.6
percent rise this year, some analysts say the stock still
offers upside.

"Cathay is well supported by the China factor," said Jay
Ryu, head of regional transport at Mirae Asset Securities.

In particular, Cathay's DragonAir unit, jointly owned with
Air China (0753.HK), has benefitted from fiscal stimulus
measures introduced in mainland China.

Daiwa Securities has a six-month price target of HK$15 for
Cathay, nearly 20 percent higher than its current price.

"We're optimistic on both Cathay and SIA, based on the
expected recovery in the international economy and markets,"
said Kelvin Lau, analyst at Daiwa Securities.

"In August, the cargo segment, which is a good indicator of
global economic trends, recovered. The market should really be
focusing on the recovery in the international economy," said
Lau, who has an outperform rating on SIA.

Singapore Airline shares are up 35 percent so far this year
and at their highest since September 2008. Credit Suisse last
week raised its target price for the stock to S$17.50 from
S$14.00 with an outperform rating.

YIELDS, PREMIUM TRAVEL A CONCERN

But it may be too soon to say that good times are back. The
International Air Transport Association (IATA) itself remains
cautious, forecasting industry losses at $11 billion in 2009
and $3.8 billion in 2010 [ID:nLT509941].

"We think passenger numbers should recover, but we are
quite pessimistic on the yield side -- the competition is still
there," said Ng Sem Guan, analyst at OSK Research based in
Kuala Lumpur. "For another year, yields will continue to be
depressed."

Premium business or first-class travel -- which account for
a big portion of Cathay and SIA revenues -- is another worry.
Analysts say this travel segment, down sharply in the past year
as businesses slashed costs, will be slow to recover even after
the global economy improves.

"The market has changed structurally, and particularly the
banking and allied groups have seen a significant downturn and
that's not going to come back quickly," said Peter Morris,
chief economist at consultant Airport Economics Ascend.

Valuations are also a concern for Singapore Airlines in
particular, with some saying its shares have risen faster than
their bumpy recovery justifies.

Singapore Airlines is trading at a rich 77 times current
year to March estimated earnings against the global sector
average of 31.5.

The median price target for SIA is S$11.65, some 15 percent
below its Thursday closing price, according to Thomson Reuters
I/B/E/S, while Cathay's median price target of HK$12.40 is
about 2 percent below its current share price.

Singapore Airlines

FY2009 FY2010 FY2011

EPS 0.9 0.18 0.77

PE 14.9 77.48 17.85

BUY SELL

ratings* 5 4

Cathay Pacific

2009 2010 2011

EPS 0.56 0.67 0.97

PE 32.145 20.26 13.138

BUY SELL

ratings* 8 1
* source: Thomson Reuters I/B/E/S, Reuters Knowledge
(Additional reporting by Harry Suhartono and Joanne Chiu;
Editing by Don Durfee and Lincoln Feast)