Singapore Airlines, Asia’s second-largest carrier by market value, reported a 71.3 per cent fall in its fiscal first-quarter net profit, as intense competition for passengers and cargo squeezed yields and its share of profits from associated companies dropped, mainly because of losses at Tiger Airways.
“Looking at the competition and what is coming in terms of capacity, we think that the next 1-2 years will continue to exert pressure on yields. We will have to manage our costs better, including fuel costs, in order to stay competitive,” SIA chairman Stephen Lee said on the sidelines of the company’s shareholders’ meeting today (July 30).
Five analysts have a “sell” rating on SIA, six rate it as a “buy” and 10 have a “hold” recommendation.
Battling intense competition from Gulf airlines and discount carriers, SIA Chief Executive Goh Choon Phong is pushing Singapore’s flag carrier into new markets including India, while increasing the group’s exposure to the low-cost segment through Tiger and its fully-owned subsidiary Scoot.
An overcapacity in the global air freight market is also hitting SIA, whose cargo unit still reported an operating loss.
Net income in the three months ended June was S$34.8 million, compared with S$121.8 million a year earlier, SIA said. Sales dropped 4.1 per cent to S$3.68 billion.
SIA, facing increased competition from budget airlines and Middle East carriers such as Emirates that are expanding into Asia, took a loss of S$18.9 million from associated companies, mainly from Tiger, in the quarter, compared with a loss of S$2.9 million a year earlier, according to the statement.
Tiger, which is 40 per cent owned by SIA, earlier this month reported a loss of S$65.2 million in the quarter ended in June, widening from a S$32.8 million loss a year earlier. The budget carrier plans to put more focus on growing its overseas business and ground eight planes to help revive the business after losing money for three straight quarters.
Travel demand to Thailand has eased since the May imposition of martial law while the two crashes involving Malaysian Airlines planes threaten to slow visitor arrivals to the Southeast Asian region.
“This sector has got far, far too much outside its own ability to control,” said Mr Credit Suisse analyst Timothy Ross. “There’s going to be weaknesses in Southeast Asia, where we’ve seen Thailand impact travel demand. The ongoing difficulties that Malaysian Airlines is having probably rubbed off a little bit for travel demand in the region.”
Operating profit dropped 52 per cent in the first quarter as growing competition hurt ticket prices. The airline’s passenger yield, or the money earned from carrying travellers one kilometre, fell to 10.9 Singapore cents from 11.1 cents a year earlier, while cargo yield rose to 33 cents from 32.7 cents.
Cost of fuel, the airline’s biggest expense, fell 4.7 per cent to S$1.37 billion.
The airline gained S$20.4 million from fuel hedging in the quarter, compared with a loss of S$42.8 million, it said.
Passengers carried by SIA rose 1.7 per cent to 4.65 million in the quarter and the carrier filled 77.7 per cent of available seats. It packed 278.5 million kilograms of cargo, 0.4 per cent more than a year ago, and filled 62.4 per cent of space.
“Aggressive fares and capacity injections from competitors will continue to place pressure on yields,” SIA cautioned. “The outlook for the air transportation industry has become more challenging with continuing uncertain global economic climate, geo-political concerns in the region and elevated fuel prices,” SIA added.
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