Singapore Air posts loss, Cathay warns of disappointing H1


Singapore Airlines Ltd., the world’s second-largest carrier by market value, posted an unexpected quarterly loss and Cathay Pacific Airways Ltd. slowed growth plans as they struggle with higher fuel costs and waning demand.

Singapore Air posted a loss of S$38.2 million ($30 million) in the three months ended March 31, compared with a profit of S$171 million a year earlier, it said in a statement Wednesday. The carrier was expected to post a profit of S$119 million, according to the average of six analysts’ estimates compiled by Bloomberg.

Cathay, Asia’s largest international carrier, predicted “disappointing” first-half earnings and pared passenger- capacity growth to 3.2 percent this year from 7 percent planned earlier. Airlines are unable to pass higher fuel prices to passengers as they contend with competition from low-cost operators and Europe’s debt crisis damps travel demand.

“Passenger demand remains weak, fuel prices keep rising and there is no sign of a pick-up in cargo,” said Jim Wong, an analyst at Nomura Holdings Inc. “Market conditions could be better in the second half on seasonality and on recovery of the U.S. and Europe economies.” 

Singapore Air said fuel prices may remain at high levels and will affect the company’s operating performance. Cathay said it will stop hiring ground staff, offer cabin crew unpaid leave and pare cargo expansion to lower costs.

Singapore Air closed unchanged at S$10.59 before the earnings announcement Wednesday. It has risen 4.2 percent this year, compared with a 9.6 percent gain for the benchmark Straits Times index. Cathay rose 0.5 percent to HK$13.36 at close of Hong Kong trading, before the announcement.

“Promotional activities necessitated by intense competition amongst airlines are expected to place downward pressure on passenger yields,” Singapore Air said in its statement. “Especially in Europe and the United States where demand continues to be impacted by the anaemic economic outlook.”

At Singapore Air’s mainline unit, yields, a measure of average fares, fell 3.3 percent in the quarter. The unit filled 77.6 percent of seats, a 2.1 percentage point increase from a year earlier. The carrier also made a loss from retiring the last of its Boeing Co. 747-400 planes.

Cathay said first-half earnings will be “disappointing” because of continued pressure on economy-class sales and “some softening” of premium-cabin yields. There are no plans to defer any on-order aircraft or to cut any routes, Cathay said. The carrier is due to receive 15 new planes this year, including six already in service.

The airline industry’s profit will drop 62 percent this year as fuel costs rise, The International Air Transport Association forecast on March 20. Air China Ltd., the world’s largest carrier by market value, and China Southern Airlines Co. both posted lower profits for the three months ended March. Deutsche Lufthansa AG this month announced plans to scrap 3,500 administrative positions as part of a 1.5 billion-euro ($1.9 billion) cost-reduction program after it posted a wider first- quarter operating loss.

Air France-KLM Group, which also reported a wider first- quarter loss, is in talks with unions as it seeks to push through a 2 billion-euro cost-cutting plan. In the U.S., American Airlines is trying to cut labor costs by $1.25 billion a year as it restructures in bankruptcy. 

‘Yields Are Soft’

“It is a situation facing the aviation industry as a whole,” Cathay Chief Executive Officer John Slosar said in Hong Kong Wednesday. “Fuel prices have increased and remained consistently high, cargo business remains generally weak, and passenger yields are soft.”

Jet fuel averaged 9 percent higher in Singapore trading than a year earlier in the three months ended March, according to data compiled by Bloomberg. Fuel accounted for 41 percent of Singapore Air’s costs in the year ended in March, compared with an average of 27 percent since 2004.

Cathay’s freight volumes fell 11 percent in the first quarter as Europe’s economic concerns sapped demand for high-end fashions and electronics made in Asia. The carrier plans to slow cargo capacity growth this year to 4 percent from a planned 7 percent. (Bloomberg)