Singapore Airlines Q2 profit falls 54%, says outlook challenging

SINGAPORE: Singapore Airlines, one of the world's largest carriers by market capitalization, posted a 54 percent drop in quarterly net profit and said the outlook remained challenging, made worse by high and volatile jet fuel prices.
SIA earned a net profit of S$ 90 million ($ 73.8 million) in the three months ended September, down from S$ 194 million a year earlier, as both passenger and cargo yields fell.
The results were, however, in line with the S$ 93 million average forecast of four analysts polled by Reuters and better than the S$ 78 million net profit achieved in the April-June quarter.
"The continuing European economic crisis is dampening global business confidence, exerting downward pressure on loads and yields of both passenger and cargo businesses," SIA said in a statement.
It added, however, that its strong balance sheet has enabled it to continue investing in new aircraft and upgrading its products and services.
SIA cut its interim dividend to 6 Singapore cents for the half year ended September, down from the previous year's 10 Singapore cents.
For the six months ended September, SIA's cargo business reported a larger operating loss of S$ 99 million, more than three times the S$ 31 million loss a year ago.
"Despite reducing freighter capacity by 2.5 percent, cargo load factor declined 1.5 percentage points to 62.7 percent, as cargo carriage declined at a higher rate of 4.7 percent," SIA said.
SIA, widely regarded as one of Asia's best airlines, has been facing increased competition from Middle Eastern carriers on its European routes at a time when passengers have become more cost-conscious. Within Asia, margins have also come under pressure due to the rise of budget carriers such as Malaysia's AirAsia.
But SIA is fighting back. In April, it launched budget carrier Scoot to ply middle distance routes between Singapore and countries such as China and Australia. Earlier this week, SIA said it will buy a 10 percent stake in Virgin Australia Holdings Ltd for A$ 105 million ($ 108.88 million) to increase pressure on rival Qantas in the latter's home market.
Chew Choon Seng, SIA's CEO before Goh Choon Phong took over in September 2010, had preferred to focus on the premium services for which the Singapore flag carrier is best known.
SIA said recently it will order five Airbus A380 aircraft and 20 more A350 planes in a deal valued at $ 7.5 billion, looking beyond a business slowdown that has led the carrier to stop hiring cadet pilots for now.
"Since the current CEO took over, they have been a little bit more willing to shake things up. Virgin was one thing, Scoot was another step that they took and they are also using SilkAir as a bigger part of their overall strategy," said Andrew Orchard, regional airlines analyst at CIMB Research.
SilkAir, a regional carrier that is 100 percent owned by SIA, signed in August a letter of intent to purchase up to 68 new aircraft from Boeing.
"They seem to be more responsive to competition right now than in the past," Orchard said.
SIA shares closed 0.7 percent higher at S$ 10.58 on Friday.
The stock has risen 4 percent so far this year, lagging the 15 percent gain in the broader Straits Times Index.