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SIA profits slump 43 percent as hedging losses and downturn bite

Singapore Airlines has posted a 43 percent drop in net profits to US$224m for the final quarter of 2008 due to fuel-hedging losses, shrinking demand for travel and adverse foreign-currency movements. However the airline, which is the world’s largest in market capitalisation, still came in ahead of market expectations.
Both passenger and cargo traffic fall in the October-December period. However passenger yield, the airline’s key measure of profitability, rose 3.2 percent from a year earlier despite a drop in the number of premium class seats sold.

Despite the deteriorating macroeconomic climate, the company said it maintained a high yield by reducing services. It has cut capacity by 3 percent, including stopping several all-business class flights to New York and Los Angeles.

SIA’s cargo sector fared less favourably. Yield dropped 5.7 percent due to a slump in exports from Asia. In December air freight fell 23 percent compared to December 2007. As a result the airline said it was grounding cargo aircraft and asking pilots to take unpaid leave to avert job losses.

Revenue fell 2.6% to $US2.77 billion. Operating profit fell 47 percent fall in operating profit to US$238m. The carrier said this was due to unfavourable foreign exchange earnings.

“Foreign-exchange rate movements lowered operating profit by S$144 million (US$96 million) as major revenue-generating currencies, particularly the Australian dollar, the U.K. pound and the Euro, weakened against the Singapore dollar, even as the Japanese yen and the U.S. dollar strengthened,” Singapore Airlines said.


Singapore Airlines said it booked an oil-hedging loss of US$227 million for the quarter, and barring any spike in oil prices it would register more hedging losses ahead. For the fourth quarter ending in March, the company said it has hedged 44% of its fuel requirements at US$131 a barrel.

The carrier announced last month that it was cancelling 214 flights (3 percent of its schedule) due to the global economic downturn taking its toll on business and leisure travel. Premium travellers contribute about half of SIA’s income and the majority of its yield.

“Demand for air transportation will remain weak for much of 2009,” the airline said.

Asia has been the airline industry’s booming region in recent years but its international passenger traffic dropped 9.7 percent in December over the previous year, the sharpest decline in any region, according to the International Air Transport Association.

Regional airlines, which account for 45 percent of global cargo, also registered the steepest fall in freight traffic, with a 26 percent decline last month.

Japan Airlines recently announced that it expected a net loss of 34 billion yen (374 million US dollars) in the year to March, down from an earlier forecast of 13-billion yen net profit.