SIA may post Q1 fall

SIA may post Q1 fall

Bloomberg, Singapore

Singapore Airlines Ltd., Asia's most profitable carrier, may report its first profit decline in eight quarters this week due to record jet fuel prices and expansion by low-fare competitors.

Net income probably slumped 54 percent to S$219 million (US$133.7 million) in the fourth quarter ended March, from S$477.9 million in the same quarter last year, according to a median estimate of eight analysts surveyed by Bloomberg News.

The airline will announce its earnings on Wednesday.

The price of jet fuel surged 51 percent to an average $57.57 a barrel in Singapore in the quarter ended March, forcing Singapore Airlines, Cathay Pacific Airways Ltd. and other Asian carriers to impose surcharges.

Costlier fares drove passengers to opt for discounts by Valuair Ltd. and 14 other low-fare airlines that fly in Asia, five times more than the same period last year.

High fuel price "is definitely having an effect on cost," said Mark Tan, who owns Singapore Airlines' shares among the $3.5 billion he manages at UOB Asset Management Ltd. in Singapore. "Fuel surcharges will not be enough to cover the cost."

Global airlines may have to pay $76 billion for jet fuel in 2005, a fifth more than last year's $63 billion, according to the International Air Transport Association. Fuel cost can account for as much as 40 percent of an airline's operating expense.

Jet fuel price surged to a record $76.38 a barrel in Singapore on April 4, according to the Platts pricing service.

The price rose 51 percent in the three months ended March to an average of $57.57, from $38.23 a year earlier. It fell 1 percent to $66.75 a barrel on May 6.

Fuel made up 28.5 percent of Singapore Airlines' costs in the quarter ended December, its largest expense.

Singapore Airlines on April 22 raised its fuel surcharge for a third time to help cover rising fuel costs. The surcharge rose to $10 from $4 per passenger for flights between Singapore and Kuala Lumpur from May 1.

The airline also raised its levy for so- called long-haul flights to $30 from $22 starting May 6.

"At $70 per barrel, the additional fuel cost to the airline will be in excess of $300 million for the fiscal year" that ends in March 2006, the carrier said.

The carrier in October said it plans to hedge 45 percent of its fuel volume in the second half of the year ended March 31.

Singapore Airlines, 57 percent owned by Singapore's state investment unit Temasek Holdings Pte, faces competition from full- service carriers and discount airlines that are both expanding.

Competition for so-called premium flyers comes from full- service carriers such as Malaysian Airline System Bhd., which said in March it would spend 1.5 billion ringgit ($395 million) to improve operations and attract those business travelers willing to pay higher fares for comfort.

Singapore Airlines competes with Qantas Airways Ltd. on flights between Asia and the U.S. West Coast, and with Emirates between Asia and Europe.

Singapore Airlines also competes for economy-class passengers with Valuair, Malaysia's AirAsia Bhd. and other low- fare carriers that are expanding their services in Southeast Asia, Vietnam, China and India.

Singapore's $104 billion economy shrank in the first quarter at an annual 5.8 percent pace, more than expected.

As many as 2.03 million travelers visited Singapore in the first three months, 8 percent more than last year, led by visitors from China, Indonesia and Australia, Singapore Tourism Board's data showed.

The passenger growth was 2.7 percent, slower than Singapore Airlines' 7 percent increase in seats, causing the airline to fill 73 percent of seats in the quarter ended March, compared with last year's 76 percent.

Singapore Airlines carried 3.89 million passengers in the January-March period, 1.7 percent more than a year earlier. It flew 278.9 million kilograms of freight, up 6.7 percent, according to the airline's monthly statistics.