Rising costs and a strong Singapore dollar which weakened passenger yields undermined Singapore Airlines' (SIA) financial performance for the year ending 31 March. The lacklustre results included only a marginal profit rise of 0.6% and an increase in net profit to $1.032 billion ($714 million) from a revenue of $7.22 billion.
With earnings short of market expectations, the airline's share price fell by 4.5% the next day.
SIA's core business produced a particularly weak result, with the company's operating profit dropping by 13.6% to $653 million. According to the airline, foreign-exchange fluctuations across a basket of currencies cost it $185 million, while expenditure jumped by $370 million, spurred on by a 23.6% rise in fuel charges and 12.6% higher staff costs.
Overall yields declined by 4.6%, while break-even load factors deteriorated by 3.3% to 65.9%. "Higher costs, as well as adverse currency movements, have all had an impact on yields," says Salomom Brothers senior research analyst Peter Negline.
SIA's bottom line was boosted by an $111 million surplus from the sale of four Boeing 747-200s, a -200F and a Boeing 737-300 freighter, while the disposal of excess spares earned $48 million.
The airline's regional subsidiary, SilkAir, returned to profit, however, largely through a $15 million sale and leaseback of two 737-300s.
SIA hopes for better performance in 1997/8, following a recent pick-up in cargo demand, a steadying of fuel prices and growing signs of a recovery in the value of the yen. "If the yen rallies, it will boost Japanese travel, stop Japanese carriers discounting in foreign markets and allow SIA and other carriers to get higher yields on Japanese tickets," says Negline.
"Currencies are fairly difficult to predict," warns James Capel analyst Nora Cheng. "Our view is rather negative. We're looking more at the implications of open-skies policy in Asia, and as long as Japan, South Korea and Taiwan don't sign with Singapore, SIA cannot benefit and US carriers will, creating more competition."
Source: Flight International
