SATS (SGX: S58) is up 6.8% today on the back of no actual news from the company. But there's an inference that can be made and is being made here. If the airline at a hub is doing really well then we can expect the company that services the hub to also do really well, right? Which may or may not be true if we're honest about it but an entirely reasonable point would be that the service company has the market opportunity to be doing well, yes.
The background here is that Singapore Airlines has just reported very strong results. Not only are the disruptions of lockdown now behind it but the former growth in the long haul market is returning - as it hasn't, quite, for some comparator airlines like IAG and its subsidiary BA. Those Singapore Airlines results were so good that it just announced an 8 months of pay bonus for all staff. Well, OK, but SATS is a different company to SIA, right?
Yes, a different company but closely linked all the same. SIA shares continue to do well today which is one thing that drags SATS up. But the really important linkage is that Changi Airport is the main hub for Singapore Airlines. Well, actually, the country's not big enough for it to have another place which SIA could use as a hub.
SATS share price from SGX
That linkage though. SATS is the major (some 80% of in fact) provider of ground services at that same airport. Well, of ground handling and catering at least. So, if we've the airline that uses this airport as its major hub reporting a business doing very well then we can imagine the company that handles - and feeds - the passengers going through that airport to also be doing well.
That's the theory at least - that's what is pulling up the SATS price on the back of the SISA results. We should note though that it is a theory. As we can see from the share price chart above it's not necessarily true that the results of the two companies will exactly track each other. Profit doesn't just come from improving market conditions - profit comes from dealing well with market conditions. More passenger flow clearly increases the potential for profit but doesn't insist upon that greater profit being achieved.
Having said all of that that this is what is driving the SATS share price. The observation that the airline they're so closely linked to as a supplier, SIA, is doing well so therefore it's a reasonable enough assumption that the supplier will also do well. But before anyone gets too, too, excited we probably want to see proof of that contention.
