Nov. 12 (Bloomberg) -- Singapore Airlines Ltd., Southeast Asia’s largest carrier, posted its biggest quarterly profit in two years after it carried more passengers and gains from hedging jet fuel helped trim the company’s biggest expenditure.
Net income rose 78 percent from a year earlier to S$160.6 million ($128 million) in the three months ended in September, Singapore Air said in a statement today. Gains from hedging fuel and contribution from associates both tripled in the quarter.
Singapore Air passenger numbers increased 6.3 percent in the quarter as economic expansion in Asia stoked more travel. Chief Executive Officer Goh Choon Phong this year ordered aircraft worth $17 billion from Airbus SAS and Boeing Co. and revamped first- and business-class offerings in a bid to fend off competition from discount carriers and Middle East airlines expanding in the region.
“It was a positive surprise on the net level with gains from associated companies and fuel hedging,” said Andrew Orchard, an analyst at CIMB Group Holdings Ltd. in Hong Kong. “But on the operational side, there are still some concerns with yields remaining soft.”
Singapore Air fell 0.4 percent to close at S$10.25 in Singapore before the earnings were released. The stock has dropped 4.7 percent this year, compared with a 0.4 percent gain for the benchmark Straits Times Index.
Jet Fuel Hedging
Operating profit rose 23 percent to S$86.9 million while sales increased 2.8 percent to S$3.9 billion, the company said in the statement. Contribution from associated companies such as Tiger Airways Holdings Ltd. tripled in the quarter to S$36.6 million.
Gains from jet fuel more than tripled to S$52.1 million, helping cut spending on oil by 0.5 percent in the quarter. The airline posted a gain of S$9.1 million in the quarter from sale of an aircraft and parts. The company will pay an interim dividend of 10 Singapore cents a share.
“Advance bookings for the coming months are projected to be higher compared to the same period last year,” Singapore Air said in the statement. “However, ongoing promotional activities necessitated by intense competition and a strong Singapore dollar are expected to place pressure on yields.”
Passenger yield, the average price a traveler pays to fly one kilometer, fell to 11 Singapore cents in the quarter from 11.4 cents a year earlier, Singapore Air said. The yield from carrying cargo dropped to 32.1 cents from 32.7 cents.
Singapore Air filled an average 81.1 percent of its seats in the period, compared with 79.8 percent a year ago.
Singapore Air in September agreed to set up an airline in India with Mumbai-based Tata Group, owner of the Jaguar and Land Rover brands, to tap surging travel demand in the world’s second-most populous nation where the number of air passengers is forecast to triple to 452 million by 2020.
The new airline, which won initial approval from India’s Foreign Investment Promotion Board last month, will be based in capital New Delhi. Tata will hold 51 percent of the venture and Singapore Air the remainder.
In May, Singapore Air ordered 30 Boeing 787-10X variant planes and 30 Airbus A350-900s to replace less fuel-efficient models. The contract also included an option for 20 more A350-900s which may be converted by the carrier for purchasing the larger A350-1000 variant.
That was on top of the of the 25 Airbus aircraft worth $7.5 billion, including five A380s, ordered in October last year.
The carrier will next week end its all-business class service from Singapore to Newark, the world’s longest non-stop flight. Direct flights between the island city and Los Angeles ceased last month.
Singapore Air faces increased competition as the alliance between Qantas Airways Ltd., Australia’s biggest, and Emirates started flights March 31. The agreement with the Dubai-based airline cuts average journey times by more than two hours from Melbourne and Sydney to the top 10 destinations in Europe.
To compete, Singapore Air this year raised its stake in Virgin Australia Holdings Ltd. The carrier is also the largest investor in Tiger Airways, a short-haul low-fare airline that competes with AirAsia Bhd., Lion Mentari Airlines PT and more than 10 other budget carriers that fly in the Southeast Asian region.
Scoot, a medium-haul budget airline fully owned by Singapore Air, started flying with Boeing 777 aircraft last year. Singapore Air transferred its orders for the Boeing 787 Dreamliners to Scoot.
Airlines worldwide are likely to generate a net income of $11.7 billion this year, 7.9 percent smaller than a June forecast, the International Air Transport Association said in September. Airlines in Asia Pacific are projected to earn $3.1 billion, $1.5 billion less than earlier estimated amid slow growth in the region’s emerging economies.
To contact the reporter on this story: Kyunghee Park in Singapore at firstname.lastname@example.org
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