Singapore Air Slashes Freighter Capacity 20% on Demand Slump
February 23, 2012, 7:55 PM ESTBy Jasmine Wang and Kyunghee Park
(Updates with closing share price in fifth paragraph.)
Feb. 23 (Bloomberg) -- Singapore Airlines Ltd., the world’s second-biggest carrier by market value, cut freighter capacity by 20 percent because of slumping demand and higher fuel prices.
The cuts took effect recently and will continue into the next operating season, which starts in late March, the carrier said in a statement yesterday. The reductions mainly affect long-haul routes, it said without elaboration.
The airline, which has a fleet of 13 Boeing Co. 747-400 freighters, is paring services as the European debt crisis saps demand for electronics, auto parts and other goods made in China. The carrier filled 58.5 percent of cargo space last month, the lowest amount since April 2009, according to data compiled by Bloomberg.
“It’s good to see excess capacity being removed from the sector,” said Robert Bruce, head of Singapore research at CLSA Ltd. Still, it “can be turned on again very quickly” as the carrier isn’t parking or retiring planes, he said.
Singapore Air fell 1.7 percent to S$10.76. in trading in the city-state today. The carrier has slumped 22 percent in the past year, compared with a 14 percent decline for Cathay Pacific Airways Ltd. in Hong Kong.
China Airlines
China Airlines Ltd., Taiwan’s biggest carrier, is planning to park a third Boeing 747 freighter because of the demand slump, Chairman Chang Chia-Juch said in Taipei today. The carrier has 20 of the cargo planes, according to its website.
“There’s an oversupply, so we’re adjusting our cargo capacity,” Chang said. “The global cargo market is weak.”
Singapore Air, which generates about 20 percent of sales from freight, had a S$40 million ($32 million) operating loss in its cargo unit in the quarter ended December. The unit filled 64.7 percent of capacity in the quarter, compared with the 69.2 percent needed to cover its costs.
The break-even target was 8 percentage points higher than a year earlier because of lower rates and higher fuel costs, the airline said in a Feb. 2 statement. The price of jet fuel has jumped 9.1 percent in the past year in Singapore trading.
“The depressed demand that we are seeing across all markets gives us little reason to be optimistic about the near- term outlook,” SIA Cargo President Tan Kai Ping said in yesterday’s announcement. The carrier doesn’t expect any improvement in the first half, he said.
Cathay Pacific has been “cutting capacity aggressively” on North America and European routes, it said this month. The carrier expects the cargo slump to extend into the second half, Chief Executive Officer John Slosar said Feb. 13.
China’s manufacturing may shrink for a fourth month in February, according to index from HSBC Holdings Plc and Markit Economics. A measure of export orders also fell to an eight- month low, the report said.
iPad 3 Pickup?
The “challenging conditions” in the air-cargo market will probably continue in the near term because of overcapacity, said Corrine Png, a analyst at JPMorgan Chase & Co. Air-cargo demand may revive later in the year helped by the expected introduction on the Apple Inc.’s iPad 3 and restocking of other technology products, she said.
Singapore Air’s cargo tonnage fell 6.5 percent last month to 87.4 million tons. Comparisons with a year earlier are distorted by the earlier lunar New Year holidays in China.
Global international air-cargo traffic, as measured by volumes multiplied by distance, fell 0.8 percent last year, compared with a 4.5 percent increase in capacity, according to the International Air Transport Association. Load factors fell to 45.9 percent.
--With assistance from Yu-huay Sun in Taipei. Editors: Neil Denslow, Vipin Nair
To contact the reporters on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net; Kyunghee Park in Singapore at kpark3@bloomberg.net
To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net
