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Singapore Airlines’ shares drop after carrier miss analysts’ quarterly targets

Feb 07, 2013 10:15 am

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Despite the shortcomings, Singapore doesn’t seem to be as out of it as the legacy carriers in Europe — it just needs to get its pricing right in 2013.

— Jason Clampet

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Simon Clancy  / Flickr

A Scoot Airlines 777 arriving at Sydney's airport. Simon Clancy / Flickr


Singapore Airlines Ltd., Southeast Asia’s biggest airline, reported profit that missed analyst’s estimates on cheaper fares to carry passengers and cargo.

Net income rose 5.4 percent to S$142.5 million ($115 million) in the three months ended December, the airline said in a statement today. That missed the S$161 million average of four analyst estimates compiled by Bloomberg.

Singapore Air’s yield from carrying passengers dropped 5.8 percent in the third quarter, trimming gains from selling more tickets in the three months. Chief Executive Officer Goh Choon Phong, 49, upgraded business-class cabins, sold a stake in Virgin Atlantic Airways Ltd. last year, and started operating a new budget carrier Scoot Pte as competition with Middle East carriers such as Emirates and low-fare airlines increases.

“The question now is whether airlines will be able to match the recent passenger traffic rise with ticket price increase,” said Andrew Orchard, a Hong Kong-based analyst at CIMB Securities HK Ltd. “There’s a lot of competition.”

Passenger yield, the average price a traveler pays to fly one kilometer, fell to 11.4 Singapore cents from 12.1 cents a year earlier, Singapore Air said in the statement. Yields from carrying cargo dropped to 33.5 cents from 34.7 cents a year earlier, the company said in the statement.

Passenger numbers

The airline carried 4.69 million passengers between October and December, compared with 4.36 million a year earlier, according to company’s monthly filings to the Singapore stock exchange. The carrier filled an average 79.3 percent of its seats in the quarter, compared with 77.2 percent a year ago.

“Loads and yields of both passenger and cargo business are expected to remain under pressure, while the price of jet fuel continues to be at a historical high,” Singapore Air said in the statement. “The depreciation of revenue-generating currencies against the Singapore dollar poses yet another challenge.”

The average price of jet fuel rose 1.7 percent in the October-December period to $126.91 per barrel, according to data compiled by Bloomberg.

The shares fell 1.8 percent, the most since Oct. 8, to S$11.15 in Singapore trading today, before the earnings announcement. The stock has gained 3.7 percent this year.

New planes

In October, Goh ordered 25 Airbus SAS aircraft worth $7.5 billion in list prices, including the double-decker A380, to replace less fuel-efficient models. Singapore Air has a fleet of 19 super-jumbos, which services routes such as Tokyo, Sydney, London and Zurich. The carrier also said then it would end the world’s longest non-stop flights, from Singapore to Newark, New Jersey, and Los Angeles.

Global air passenger traffic grew 5.3 percent last year, boosted by the expansion of Middle Eastern carriers and demand from markets in Latin America and Africa, the International Air Transport Association said on Jan. 31. Cargo demand fell 1.5 percent in 2012. Passenger traffic may grow 4.5 percent in 2013, with cargo markets projected to increase 1.4 percent, IATA said.

Singapore Air faces increased competition as Qantas Airways Ltd., Australia’s biggest, formed an alliance last year with Emirates, the Middle East’s largest airline. The tie-up has received provisional approval from Australia’s antitrust regulator in December.

Virgin, Tiger

To compete, Singapore Air in November agreed to buy a 10 percent stake in Virgin Australia Holdings Ltd. for A$105 million ($109 million). Virgin Australia took control of the Australian arm of Tiger Airways Holdings Ltd.

Singapore Air is the largest investor in Tiger, a short-haul, low-fare airline that takes on AirAsia Bhd., Lion Mentari Airlines PT and a dozen other budget carriers that fly in the Southeast Asian region.

Last year, Scoot, a medium-haul budget airline fully owned by Singapore Air, started flying with Boeing 777 aircraft. Singapore Air transferred its orders for the Boeing 787 Dreamliners to Scoot.

Singapore Air in December sold its 49 percent stake in Virgin Atlantic to Delta Air Lines Inc. for $360 million. The carrier had earlier written down its investment in the U.K. carrier controlled by billionaire Richard Branson. The deal is expected to close in the fourth quarter.

To cut costs, the airline is offering captains voluntary no-pay leave. The company has a “temporary” surplus of captains, spokesman Nicholas Ionides said last month. Singapore Air last year offered first officers unpaid voluntary leave. The airline last month said it will release 76 pilots that were employed on fixed-terms by June 30 before their contracts expire.

Editors: Anand Krishnamoorthy, Linus Chua. To contact the reporter on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net. To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net.

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