Press: SIA sees strong premium demand

Singapore Airlines reported a 69 percent surge in operating profit in the three months ended 30-Jun-07, thanks to continued buoyant passenger demand. Passenger yield rose a strong 8.5%, while unit costs rose 6.7%, leading to a 1.2 ppt reduction in break-even passenger load factor to 69.6%. The actual passenger load factor was 9.3 ppts higher than breakeven, rising 3.3 ppts in the quarter year-on-year to 78.9%.

The earnings result was better than market expectations and SIA is confident the good news will continue to flow, reporting high forward bookings across all regions in the second quarter (to 30-Sep-07), especially in the premium cabins.

Passenger capacity fell 1.2% in the first quarter, but growth will resume later in the year with the delivery of four more B777-300ERs and three A380-800s by Mar-08. Even so, passenger capacity is expected to grow by just 1% for the full financial year ending 31-Mar-08 - the slowest rate of growth since 2003/04 when the SARS outbreak led to an 11% reduction in capacity that financial year.

Meanwhile, the cargo segment remains weak, with cargo yield falling 6.5% in the first quarter. The cargo unit reported a load factor of 62.1% - some 3.2 ppts below the break-even level, despite trimming capacity by 0.8%. Meanwhile Singapore Airport Terminal Services and SIA Engineering Company saw profits slip 4.2% and 11.8%, respectively, in the first quarter year-on-year.

Fuel also remains a “significant challenge” to earnings with price volatility continuing to be a key variable to financial performance, according to SIA.

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Qantas CEO, Geoff Dixon, echoed these sentiments yesterday, stating the cost of aviation fuel is a “continuing and very complex challenge.” The Australian carrier is raising its fuel surcharges next week, following moves by SIA and others to levels last seen around this time in 2006.

Fuel prices started to decline from their highs in Aug-06 - and a repeat performance would be warmly welcomed by airlines this year.
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