Singapore Airlines not alone in a year of dismal results, Cathay warns of disappointing first half

The lacklustre result for Singapore Airlines’ fiscal 2011/12 performance does not come as a surprise. A fourth quarter loss of S$38.2 million (US$30.6 million) – compared to a profit of S$171 million for the same quarter last year – saw full-year profit (2011/12) for the SIA group plunging 69 per cent from S$1.092 billion to S$335.9 million.

SIA the airline itself made an operating profit of $181 million, compared to S$851 million in the previous year. It carried 17.16 million passengers, up from 16.65 million, but the passenger load factor went down from 78.5 per cent to 77.4 per cent as demand lagged behind capacity growth.

The company cited high fuel prices and an uncertain global economy for the dismal results. Fuel cost reportedly jumped 29 per cent. “Fuel prices are expected to remain at high levels, which will adversely impact the group’s operating performance,” said SIA in an issued statement.

The airline appears to be more assured now about a need to shift its market focus somewhat in light of the vulnerability of its exposure to the US and European markets. SIA plans to focus more on Asia as the weak global economy takes its toll on long-haul routes – the same revised strategy adopted by other major airlines including Qantas and Cathay Pacific Airways. Qantas has repeatedly underscored its intention to penetrate deeper into the Asian market, and Cathay is reducing passenger capacity on the long haul beyond the region.

No doubt SIA is also feeling the pinch of competition from not only other premium carriers, notably Middle East carriers – Emirates Airlines and Qatar Airways – but also low-cost carriers as the market levels. The greatest challenge it faces now is containing the dilution of its brand differentiation.

If it is of any consolation to SIA, it is not alone in a year of dismal results. Emirates too reported a sharp decline in profit – by 72 per cent – for the year ended March 31. Close regional rival Cathay has issued a statement to pre-warn investors that the first half of the year “will be disappointing due to the triple whammy of soaring fuel costs, continuing soft demand in our cargo business and worsening yields on the passenger side.” It looks like group commiseration – which is not exactly a healthy thing in the harsh world of business – since, according to Cathay, “it is one that the entire airline industry is facing.”

The good news for SIA is that advance bookings are trending up, although the airline recognized that for the next quarter, it was on a low base following the post-Japanese earthquake period last year. With the acquisition of more fuel-efficient aircraft in its continuing fleet replacement programme – SIA has ceased operating passenger flights on older 747 jets – it will be a better position to compete in an environment plagued by rising fuel prices. Above all, as it said in its statement, with a strong balance sheet, it is well positioned to meet the challenges ahead.


About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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