Singapore Air Reiterates Weak Outlook as Profit Slumps 70%

(Bloomberg) -- Singapore Airlines Ltd. said it will be vigilant on costs as it warned yet again that the weak operating outlook is likely to persist amid excess capacity and aggressive pricing by competitors.

The prospects for most major economies remain “tepid,” while passenger airline business continued to be impacted by geopolitical uncertainty and weak global economic conditions, Singapore Air said in a statement Thursday. The premium carrier reported its first quarterly slump in two years, saying passenger and cargo yields -- a key measure of profitability in the industry -- continue to be under stress.

Singapore Air and its other premium rival Cathay Pacific Airways Ltd. are fighting to revive profit growth as Middle Eastern carriers, offering comforts such as in-flight shower, lure first- and business-class passengers away, while budget carriers chip away at the economy end. Both the Asian airlines have warned of tougher days ahead, while Cathay said last month that it is conducting a “critical review” of its business after scrapping its profit outlook.

“How they arrest the declining yields will be the key issue for Singapore Airlines,” said Shukor Yusof, founder of aviation consulting firm Endau Analytics. “Singapore Air faces extreme competition and is suffering as much as Cathay. They are banking on flights to the U.S. going forward.”

Shares of Singapore Air fell 1.6 percent to S$9.95 on Friday. The stock has dropped 11 percent this year, compared with a 3.3 percent decline in the benchmark Straits Times Index.

Singapore Air -- the only Asian airline to have flown the Concorde and the first in the world to fly the A380 superjumbo -- said Thursday that net income tumbled 70 percent to S$64.9 million ($46.8 million) in the three months through September from a year earlier. Sales fell about 5 percent to S$3.65 billion. The yield, or the amount earned by carrying a person per kilometer, dropped 3.8 percent to 10 cents in the quarter.

Cathay reported an 82 percent drop in first-half profit amid growing competition from Chinese carriers and decline in premium travel demand. Passenger yields for the Hong Kong-based airline dropped 10 percent from a year earlier to 54.3 Hong Kong cents in the January-June period.

Fuel costs at Singapore Air fell about 22 percent to S$946.4 million in the quarter through September, while fuel hedging losses narrowed to S$146.3 million from S$306.3 million a year ago, the carrier said in the statement.

“We don't expect the gloom to be forever,” Singapore Air's Chief Executive Officer Goh Choon Phong told reporters and analysts Friday in the island city. “This very difficult environment -- we expect that to go away at some point in time and there will be some growth.”

Singapore Air has been looking to build alliances abroad as part of a multi-hub strategy. It partnered with India's Tata Group to start Vistara in January 2015 and owns about 23 percent of Virgin Australia Holdings Ltd. The company has also teamed up with Deutsche Lufthansa AG under a revenue-sharing agreement on flights to Germany and Southeast Asia.

Singapore Air started flying its Airbus Group SE 253-seat A350 aircraft to Amsterdam from May 9. It began direct flights to San Francisco last month and it will receive the ultra-long-range version of the plane in 2018 for services to New York, which will become the world's longest non-stop flight.

To contact the reporter on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net. To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net, Sam Nagarajan