Paul Lewis/SINGAPORE
Singapore Airlines (SIA) has warned of a tougher year ahead in the face of falling passenger loads and anticipated erosion of yields, after announcing only a marginal growth of net profit for the 12 months ending 31 March.
The airline turned in a net profit of S$1.03 billion ($630 million) for fiscal year 1997-8, an increase of 0.3% on the previous 12 months. Profits were sustained by a 1.1% increase in overall passenger and cargo yields on the back of a weaker Singapore dollar and despite a 1.4 % decline in overall load factor to 69.1%.
SIA is warning that yields are set to fall over the 12 months, as pricing competition from neighbouring carriers offsets any benefits it might derive from a continuing weak local currency. The carrier states that its outlook for passenger traffic is "poor", with demand outbound from South Korea, Japan and South-East Asia set to contract still further.
"The weaker economy is going to hit them," predicts Peter Negline, senior research analyst at Salomon Brothers. "The airline has done quite well on yield as a result of foreign exchange. If the Singapore dollar stays at this level, however, they're not going to get any further currency boost, while ticket prices are going to have to fall as volume declines."
SIA has sought to improve aircraft utilisation by switching to smaller aircraft on its Bangkok, Hong Kong and Seoul routes, reducing frequencies to Jakarta, Kuala Lumpur and Surabaya and increasing capacity to Europe. One of its major challenges in 1998-9 will be to bring capacity in line with demand, say analysts.
Overall traffic for the year grew by 5.5%, but weakness in the passenger market has already begun to register, with a 4% decline in revenue passenger kilometres in the six months to March. Over the same period, SIA's capacity expanded by 4.7% and is set to grow by a further 8%, with six additional Boeing 777s, two 747-400s and three Airbus Industrie A340-300s due for delivery.
"SIA can't afford that rate of capacity growth. It must reduce it or the share price will take a pummelling. It must defer deliveries or accelerate disposals," warns one financial observer.
In 1997-8, the carrier sold two A310-200s, a 747-300 Combi and a -200F, generating S$150 million, sold and leased back another five 747-400s and has delayed delivery of three 777s and a 747 in 1999.
Source: Flight International
