Singapore Airlines Declines on Wider Loss at Cargo Unit

Singapore Airlines Ltd. (SIA), the world’s third-largest carrier by market value, fell in Singapore trading after posting a 54 percent drop in profit because of a wider loss at its cargo unit.

The carrier dropped 1 percent at the close to S$10.47, after earlier touching S$10.40. The benchmark Straits Times Index fell 0.3 percent.

Losses at the carrier’s cargo unit tripled in the quarter ended September as it contends with slower trade and competition from Middle East airlines. The Singapore-based company will park one of its 13 Boeing Co. (BA) 747 freighters for more than a year to cut capacity and it would consider plane sales, Chief Executive Officer Goh Choon Phong told reporters in the city today.

“We can expect that going forward the economy will continue to be very challenging, or perhaps even more challenging,” he said. “We don’t see any reprieve in terms of improvement, especially from economies such as Europe.”

The carrier would be open to selling freighters “if there’s a good enough offer” he said. It’s also looking at ways to shed passenger planes, he said without elaboration.

Cargo capacity for Singapore Airlines may be as much as 3 percent lower in the year ending March than a year earlier, said Chan Hon Chew, senior vice president for finance. Group passenger capacity will probably rise 4 percent, he said.

Cargo Loss

Operating losses at the cargo unit jumped to S$50 million in the quarter ended September, according to Bloomberg calculations. Earnings at the main airline unit fell 5.6 percent to S$84 million. The engineering division’s operating profit fell 5.9 to S$32 million, while regional carrier SilkAir boosted its figure 46 percent to S$19 million. The numbers were derived by subtracting first-quarter earnings from first-half results.

“We are not convinced that we will see a material earnings pickup over coming months,” Hong Kong-based Deutsche Bank AG analyst Joe Liew said in a note today. “We continue to see no reason to own the stock.” He recommends selling the stock and has a 12-month price forecast of S$8.65. That’s the lowest among 16 estimates compiled by Bloomberg.

The airline cut its interim dividend to 6 Singaporean cents from 10 Singaporean cents a year earlier. The 747 freighter will be parked from January until May 2014, according to a statement. The move follows cuts in long-haul freighter flights earlier this year.

The carrier has risen about 3 percent this year, trailing a 15 percent gain for the Straits Times Index.

Cargo Falling

Global cargo volumes fell 0.6 percent in September from August, according to the International Air Transport Association. Freight load factors were 45.6 percent in the period.

“We will have to ride out the current challenges that we are facing,” said Ng Chin Hwee, chairman of Singapore Air’s cargo unit and executive vice president for HR and operations. “When the economy picks up we will start to see the cargo business coming back.”

Singapore Air last week agreed to buy a 10 percent stake in Virgin Australia Holdings Ltd. for A$105 million ($109 million). The company is facing rising competition on Australia-Europe routes from fast-growing Gulf airlines led by Emirates.

“The deal with Virgin Australia is a cementing of the relationship with Virgin Australia and a demonstration of our commitment to the Australian market,” Goh said. “We look for opportunities of growth in terms of partnerships.”

Budget Carrier

The carrier has no immediate plans to increase the Virgin Australia (VAH) stake or to buy into other carriers, he said. Still, the company would look at other investments “if it makes business sense,” he said.

Singapore Air also this year formed long-haul budget carrier Scoot. The unit is filling about 80 percent of seats, Goh said.

The carrier said Oct. 24 it would end the world’s longest non-stop flights, from Singapore to Newark, New Jersey, and Los Angeles. It announced plans to buy 25 Airbus SAS aircraft worth about $7.5 billion at list prices to replace less fuel-efficient models the same day.

The company is able to finance the plane purchases from internal sources, Goh said. The airline has also hedged 43 percent of its fuel needs for the six months through March at an average price of $123 a barrel of jet fuel, he said.

To contact the reporters on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net; Sharon Chen in Singapore at schen462@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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