Bloomberg News

Singapore Air Profit Slumps 53% on Fuel Costs, Competition

February 02, 2012

(Updates with company comment in third paragraph)

Feb. 2 (Bloomberg) -- Singapore Airlines Ltd., the world’s second-largest carrier by market value, reported a fifth straight decline in quarterly profit because of rising fuel costs, greater competition and waning demand for premium travel.

Net income fell 53 percent to S$135 million ($108 million) in quarter ended December, from S$288 million a year earlier, the airline said in a statement today. That compares with the S$162 million average of three analyst estimates compiled by Bloomberg. Sales rose 1 percent to S$3.9 billion.

Forward bookings “continue to show signs of weakness” this quarter as the global economic uncertainty deters travelers from taking trips, the carrier said. Singapore Airlines also faces rising competition on long-haul routes from Middle Eastern carriers, while low-cost airlines Jetstar and AirAsia Bhd. are luring budget-conscious travelers on Asian routes.

“Passenger demand will fall further before getting better,” said Andrew Orchard, a Hong Kong-based analyst at Royal Bank of Scotland Group Plc., who has a ‘sell’ rating on the carrier. “Travel budgets or staff numbers are getting cut due to the challenging economy.”

Singapore Air’s mainline unit made an operating profit of S$137 million in the quarter, compared with S$378 million a year earlier. It filled 77.2 percent of total available seats, down 2.5 percentage points from a year earlier. Yield, a measure of average fares, was unchanged at 12.1 Singapore cents from a year earlier.

Load Factors

The carrier’s passenger load factor fell for a 17th straight month year-on-year in December as increases in capacity outpaced demand. The airline boosted flights to Osaka, Guangzhou, Mumbai and Beijing beginning in October. It’s planning to reduce services to Istanbul, Dubai, Houston and Taipei.

The company rose 0.4 percent to S$11 at close of trading in the city state, while the benchmark Straits Times Index was little changed. The carrier has dropped 25 percent over the past year.

Regional arm SilkAir made an operating profit of S$32 million in the quarter, while cargo operations lost S$40 million. The carrier’s engineering unit had an S$28 million profit.

Companywide fuel costs jumped 33 percent in the quarter from a year earlier because of rising prices and additional flights. Jet kerosene prices averaged $124.73 a barrel in Singapore trading in the period, compared with $98.56 a year earlier, according to data compiled by Bloomberg.

Singapore Air is also introducing a long-haul budget unit called Scoot this year to fend off competition from AirAsia X and Qantas Airways Ltd.’s Jetstar. Destinations will include China and Australia.

Global international premium traffic grew 0.1 percent in October, the slowest pace in almost two years, and 1.7 percent in November, according to the International Air Transport Association.

--Editors: Neil Denslow, Vipin V. Nair

To contact the reporters on this story: Jasmine Wang in Hong Kong at Jwang513@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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