Singapore Airlines Ltd., Asia’s biggest carrier by market value, posted profit that beat estimates after selling its stake in Richard Branson’s Virgin Atlantic Airways Ltd., helping send the shares higher for the first time in five days.
The sale benefits offset a wider operating loss and a 60 percent slump in net income in the quarter ended in March. The carrier will pay a special dividend of 25 Singapore cents in addition to a 11 Singapore cents dividend, the company said in a statement yesterday.
Singapore Air and its cargo unit both posted an operating loss as competition with a dozen budget airlines across the Asia-Pacific region for coach-class travelers and with Emirates for premium passengers hurt margins. Chief Executive Officer Goh Choon Phong is responding to the challenges by pressing ahead with a $17 billion aircraft-purchase program and expanding into Australia and India through partnerships.
“Conditions will continue to be challenging for the next few months,” said Brendan Sobie, a Singapore-based analyst at industry consultant Capa Centre for Aviation. “There’s competition regionally with low-cost carriers, and that has added a lot of capacity over the last year.”
The stock rose as much as 0.9 percent to S$10.34. It traded at $10.28 as of 10:19 a.m. in Singapore, paring this year’s decline to 1.25 percent. The benchmark Straits Times Index has gained 2.7 percent this year.
Nine of 21 analysts recommend buying the airline’s stock, according to data compiled by Bloomberg. Three say sell and nine have a hold rating.
Profit fell to S$27 million ($22 million) in the quarter, beating the S$8 million average of four analysts’ estimates compiled by Bloomberg.
Singapore Air is increasing passenger capacity by 1 percent in the year to March 2015, according to the statement. In the year that ended in March, the carrier’s capacity had increased by 1.9 percent. The airline will spend $325 million to fit its Boeing Co. 777-300ER with new cabin products, according to a statement today.
The operating environment “continues to be challenging with intense competition in many areas, and economic uncertainty in key markets,” it said.
The airline, famous for its “Singapore Girl” advertising campaigns, made adjustments to the profit it had from the sale of its stake in Virgin Atlantic. That resulted in a one-time gain of S$31.6 million in the quarter ended in March, according to the statement. The airline had booked profits from the deal in the first quarter of the last fiscal year.
In December 2012, Delta Air Lines Inc. agreed to buy the 49 percent stake Singapore Air held in Virgin Atlantic for $360 million. The Asian carrier, which held that stake since 1999, said last year it posted a net gain of S$336 million from the sale of the stake.
The operating loss widened to S$60.3 million from S$44.2 million even as fuel costs, the carrier’s biggest expense, declined in the quarter. The airline also had a one-time impairment of S$5.4 million and took provision for penalties incurred by its cargo unit of S$6.4 million.
Passenger numbers, traffic and yields all fell in the quarter, causing a 1 percent drop in companywide sales.
The board recommended paying a special dividend of 25 Singapore cents per share “having considered the sound financial position of the company, which is adequate to grow its business organically and to pursue strategic opportunities,” according to the statement. That will be in addition to an 11-cent dividend.
Goh has ordered new aircraft as the carrier expands into new markets such as India. Singapore Air and India’s Tata Group aim to start an airline together in the second half of this year to tap surging travel demand in the country. The number of passengers in the south Asian country is projected to triple to 452 million by 2020.
The new airline, which received certification in April to start operations from India’s Ministry of Civil Aviation, will be based in capital New Delhi. Tata will hold 51 percent of the venture and Singapore Air the remainder.
“Singapore Air has a lot to spend this year with the India venture,” said K. Ajith, an analyst at UOB-Kay Hian Pte. in Singapore. “We need to see how they are going to manage that and the earnings as well.”
In May last year, 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 25 Airbus aircraft worth $7.5 billion, including five A380s, ordered in October 2012.
The International Air Transport Association said in March that carriers worldwide will earn a combined $18.7 billion in net income in 2014, 5 percent lower than a December projection of $19.7 billion. Of the total, carriers in the Asia-Pacific region should lift earnings to $3.7 billion, IATA said.
“The next few months will still be challenging,” said Derrick Heng, an analyst at Maybank Kim Eng Holdings Ltd. in Singapore. “The good news is that carriers have acknowledged the surplus capacity and are taking steps to rein-in their expansion plans.”