Singapore Air Net Falls as Cargo Charges Mask Traffic Gain

Feb 06, 2014 7:22 am ET

(Updates with share price in fifth paragraph.)

Feb. 6 (Bloomberg) -- Singapore Airlines Ltd., Southeast Asia’s biggest carrier, posted a 65 percent decline in profit in the third quarter after charges relating to a cargo class action settlement masked an increase in passenger numbers.

Net income in the three months ended December dropped to S$50.1 million ($39 million), compared with S$142.5 million a year earlier, the carrier said in a statement today. Sales was little changed at S$3.87 billion.

Singapore Air’s settlement of a cargo class-action suit in the U.S. prompted a charge of about S$80 million in the quarter, in addition to losses from associated companies such as budget airline Tiger Airways Holdings Ltd. That dented gains from carrying more passengers, a demand-growth that prompted Chief Executive Officer Goh Choon Phong to order $17 billion of new, fuel-efficient aircraft from Airbus Group NV and Boeing Co.

“The outlook for the air transportation industry continues to be challenging,” the carrier said in the statement. “Efforts to stimulate demand to boost loads will continue to place pressure on yields.”

The shares rose 0.3 percent to S$9.50 at close of trading in Singapore before the earnings announcement. The stock has dropped 8.7 percent this year. Seven of 19 analysts recommend investors buy the stock, according to data compiled by Bloomberg. Four say sell and eight suggest holding the stock.

Losses

Singapore Air took a loss of S$40.8 million from associated companies in the quarter, compared with a profit of S$20.3 million a year earlier, according to the statement.

The airline’s passenger yield, or the money earned from carrying travelers one kilometer, fell to 11.2 Singapore cents in the quarter from 11.4 cents a year earlier, while cargo yield dropped to 33.4 cents from 33.5 cents.

Passenger numbers increased 2.1 percent to 4.78 million and the carrier packed 79.4 percent of available seats.

CEO Goh is ordering new planes as he retires old Boeing 747s and ultra-long range Airbus A340-500s and the airline expands to new markets such as India.

Singapore Air and India’s Tata Group aim to start an airline together in the second half of this year to tap surging travel demand in the world’s second-most populous nation. The number of passengers in the south Asian country is forecast to triple to 452 million by 2020.

New Planes

The new airline, which won initial approval from India’s Foreign Investment Promotion Board in October, will be based in capital New Delhi. Tata will hold 51 percent of the venture and Singapore Air the remainder.

In May, Singapore Air ordered 30 Boeing 787-10X variant planes and 30 Airbus A350-900s to replace less fuel-efficient models. The contract also included an option for 20 more A350-900s which may be converted by the carrier for purchasing the larger A350-1000 variant.

That was on top of the of the 25 Airbus aircraft worth $7.5 billion, including five A380s, ordered in October 2012.

The International Air Transport Association said in December that carriers worldwide will earn a combined $19.7 billion in net income in 2014, up from a September projection of $16.4 billion. Of the total, Asia-Pacific carriers should lift earnings to $4.1 billion, IATA said in December.

--Editors: Anand Krishnamoorthy, Vipin V. Nair