Profit forecasts for Asian airlines cut due to U.S.
Profit forecasts for Asian airlines cut due to U.S.
SINGAPORE (AFP): Global brokerage house Salomon Smith Barney has slashed its profit forecasts for Asian airlines as much as 17 percent over the next two years as the U.S. economy lumbers to a worse than expected slowdown.
Previous projections for 2001 for Hong Kong's Cathay Pacific Airways, Singapore Airlines (SIA) and Thai Airways were cut by 16 percent, four percent and seven percent, respectively.
For the following year, the brokerage reduced its estimates for Cathay Pacific by 16.7 percent, and 6.7 percent for SIA but raised Thai Airways by four percent because of a strong tourism industry.
The aviation report was released as the United States produced further gloomy economic figures showing growth in the fourth- quarter of 2000 at just 1.4 percent
"Due to the worse-than-expected US economic downturn, we have lowered our 2001E earnings (forecast) for CX (Cathay), SIA and TG (Thai Airways) by as much as 16 percent," Salomon Smith Barney said.
The Singapore carrier is seen as the most attractive among major Asian airlines, with 18 percent earnings growth projected for the next two years, the report said.
SIA, which does not issue quarterly reports, said net profit grew 93 percent to 1.141 billion Singapore dollars (670 million US) in the first six months of its fiscal year ended September.
"With an experienced management team, a premier brand name and services, and a healthy balance sheet, we believe SIA should be able to weather the economic downturn.
"It is worth noting that SIA was able to generate earnings even during the Asian economic crisis (in 1997 and 1998)," Salomon Smith Barney said.
Despite the downward revision in earnings forecasts, margins in Asia are expected to remain the highest in the world, it added.
Air traffic demand should slow slightly this year "given its direct relationship with gross domestic product," Salomon Smith Barney said.
"However, we believe the economic slowdown will be contained and a pick-up should be expected in 2002."
Salomon Smith Barney said that the timing of additional aircraft deliveries was crucial to maintaining earnings momentum under the dampened environment.
"Thus, having the flexibility to defer aircraft deliveries to retire old aircraft may prove beneficial to the bottom line," it said, adding that it viewed "positively" news that Cathay might defer the delivery of some aircraft orders.