Bloomberg News

Fuel Hits Cathay Pacific, Singapore Air Earnings

May 10, 2012

Singapore Airlines made an operating loss of $5 million compared with a profit of S$166 million a year earlier. Photographer: Munshi Ahmed/Bloomberg

Singapore Airlines made an operating loss of $5 million compared with a profit of S$166 million a year earlier. Photographer: Munshi Ahmed/Bloomberg

Cathay Pacific Airways Ltd. (293) plunged the most in more than a year and Singapore Airlines Ltd. (SIA) tumbled after the carriers said that higher fuel prices and waning demand were hitting earnings.

Cathay tumbled 6.3 percent to HK$12.52 at the close in Hong Kong, the biggest drop since December 2010, after cutting growth plans and predicting “disappointing” first-half earnings. Singapore Air fell 2.8 percent to S$10.29, the lowest since January, in the city-state, after a surprise quarterly loss.

Asia’s two largest airlines by international travel are struggling to pass on fuel costs that have jumped 40 percent in two years as the economic slowdown damps demand for passenger and freight flights. Deutsche Lufthansa AG also this month announced plans to cut 3,500 posts to lower costs following a wider first-quarter loss.

“Passenger demand remains weak, fuel prices keep rising and there is no sign of a pick-up in cargo,” said Jim Wong, an analyst at Nomura Holdings Inc.

Singapore Air slumped to a surprise loss of S$38.2 million ($31 million) in the quarter ended March 31, the company reported after the close of local markets yesterday. It had been expected to make a profit of S$119 million, based on the average of six analyst estimates compiled by Bloomberg.

‘Under Pressure’

The company’s yields, a measure of average fares, are “under pressure” as competition has forced it to keep prices low, Goh Choon Phong, Singapore Air’s chief executive officer, told reporters in city-state today. Cathay’s yields are also “softening” in premium cabins, it said in a trading statement yesterday.

A “high fuel price and weak economic environment are particularly challenging to long-haul airlines,” Goh said.

Cathay pared its forecast of passenger-capacity growth to 3.2 percent this year from 7 percent, while Singapore Air’s main unit plans to increase capacity about 3 percent in the year that started April 1, down from a 5 percent expansion in the previous fiscal year.

Cathay will stop hiring ground staff, offer cabin crew unpaid leave and pare cargo expansion to lower costs. Singapore Air has no plans to offer cabin attendants and more pilots unpaid leave, said Ng Chin Hwee, its executive vice president for operations. The airline offered first officers as much as two years off in March.

Fuel Rises

Jet fuel averaged 9 percent higher in Singapore trading than a year earlier in the three months ended March, according to data compiled by Bloomberg. Fuel accounted for 41 percent of Singapore Air’s costs in the year ended in March, compared with an average of 27 percent since 2004.

“It is a situation facing the aviation industry as a whole,” Cathay Chief Executive Officer John Slosar said in Hong Kong yesterday. “Fuel prices have increased and remained consistently high, cargo business remains generally weak, and passenger yields are soft.”

Cathay has no plans to defer any on-order aircraft or to cut any routes, the airline said. Cathay is due to receive 15 new planes this year, including six already in service.

Singapore Air’s regional unit SilkAir has sent out requests for information as it considers purchasing small planes such as Boeing Co. (BA:US) 737s and Airbus SAS A320s to give it more coverage in China and India, said Mak Swee Wah, its executive vice president, commercial.

At Singapore Air’s mainline unit, yields fell 3.3 percent in the quarter ended March. The unit filled 77.6 percent of seats, a 2.1 percentage point increase from a year earlier. The carrier also made a loss from retiring the last of its Boeing 747-400 planes.

The airline industry’s profit will drop 62 percent this year as fuel costs rise, the International Air Transport Association forecast on March 20. Air China Ltd. (601111), the world’s largest carrier by market value, and China Southern Airlines Co. both posted lower profits for the three months ended March.

To contact the reporters on this story: David Fickling in Sydney at dfickling@bloomberg.net; Kyunghee Park in Singapore at kpark3@bloomberg.net

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


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