Source: Reuters Author: Daryl Loo 05/13/2008
Subject Concerned: Opinion Airlines Aviation Fuel
Singapore Airlines (SIA), the world's second-biggest airline by market value, saw quarterly profit on May 13 fall a less-than-feared 21 percent and warned of slower demand amid record fuel costs.
SIA, which relies on premium and business travellers for about half its revenues, cautioned the current turmoil in global financial markets has clouded the outlook for air travel.
"The results blew the consensus away. It seems their fuel hedging has been done pretty well which contributed to higher operating profit," said Morgan Stanley analyst Chin Lim.
The lower profit was mostly due to a one-off tax gain a year ago. Analysts say SIA could still be hurt by a drop in business travel due to the ongoing U.S. credit crisis, after the carrier reported four consecutive months of lower passenger traffic from North America since December due to slowing demand.
In April, the International Air Transport Association (IATA) slashed its 2008 profit forecast for the airline industry for the second time in four months, to reflect a deepening global economic gloom and record high fuel costs.
Benchmark Asian jet fuel prices JET-SIN hit a new record over US$159 per barrel on May 13 and are up about 44 percent since the start of the year, reflecting the rise in global oil prices.
"The combination of a global economic slowdown and record high fuel prices will make this a more challenging year for airlines," Singapore Air said in a statement.
SIA, which at US$13.4 billion ranks behind Air China, said January-March net profit was S$527.5 million (US$386.2 million) compared with S$671 million a year ago. That beat an average forecast of S$364 million from 11 analysts polled by Reuters.
The year ago period was boosted by a gain of S$247 million due to a tax write-back that followed a cut in Singapore's corporate tax rate.
Operating profit for Singapore Air, 55-percent owned by state investment firm Temasek, was S$468.1 million, compared with S$333.5 million a year ago.
The carrier recommended a final dividend of 80 Singapore cents per share to be paid in August, bringing its total dividend for the last financial year to 100 cents per share.
Singapore Air, which with parent Temasek in February failed in a bid to take a combined 24 percent stake in China Eastern Airlines for US$920 million, is expected to make a second bid for the Chinese carrier in order to break into the world's fastest-growing aviation market.
Singapore Air shares fell 10 percent in the first three months of 2008, slightly outperforming the benchmark Straits Times index's 13 percent fall and regional rivals Qantas, which fell 28 percent, and Cathay Pacific, which lost 25 percent.