Singapore Air Profit Drops on Slow Travel Demand, Tiger Loss

July 30 (Bloomberg) -- Singapore Airlines Ltd., Asia’s second-largest carrier by market value, reported first-quarter profit fell after ticket prices declined and a low-fare carrier affiliate posted losses.

Net income in the three months ended June was S$34.8 million ($28 million), compared with S$121.8 million a year earlier, the carrier said in a statement to the Singapore stock exchange today. Sales dropped 4.1 percent to S$3.68 billion.

Singapore Air, facing increased competition from budget airlines and Middle East carriers like Emirates that are expanding into Asia, said the share of profits from associated companies dropped, mainly because of losses at Tiger Airways Holdings Ltd. Travel demand to Thailand has eased since the May imposition of martial law while the two crashes involving Malaysian Airline System Bhd. planes threaten to slow visitor arrivals to the Southeast Asian region.

“This sector has got far, far too much outside its own ability to control,” said Timothy Ross, the Singapore-based analyst at Credit Suisse Group AG. “There’s going to be weaknesses in Southeast Asia, where we’ve seen Thailand impact travel demand. The ongoing difficulties that Malaysian Airlines is having probably rubbed off a little bit for travel demand in the region.”

Lower Yield

Operating profit dropped 52 percent in the first quarter as growing competition hurt ticket prices. The airline’s passenger yield, or the money earned from carrying travelers one kilometer, fell to 10.9 Singapore cents from 11.1 cents a year earlier, while cargo yield rose to 33 cents from 32.7 cents.

The shares closed unchanged at S$10.60 in Singapore before the earnings announcement. The stock has gained 1.8 percent this year. Seven of 23 analysts recommend investors buy the stock, according to data compiled by Bloomberg. Five say sell and 11 suggest holding the stock.

Singapore Air took a loss of S$18.9 million from associated companies, mainly from Tiger Air, in the quarter, compared with a loss of S$2.9 million a year earlier, according to the statement.

Cost of fuel, the airline’s biggest expense, fell 4.7 percent to S$1.37 billion. Jet fuel swaps in Singapore rose 3.5 percent in the April-June period to an average $120.60 a barrel, according to data compiled from PVM Oil Associated Ltd., a London-based broker.

Aggressive Fares

The airline gained S$20.4 million from fuel hedging in the quarter, compared with a loss of S$42.8 million, the company said in the statement.

Passengers carried by Singapore Air rose 1.7 percent to 4.65 million in the quarter and the carrier filled 77.7 percent of available seats. It packed 278.5 million kilograms of cargo, 0.4 percent more than a year ago, and filled 62.4 percent of space.

“Aggressive fares and capacity injections from competitors will continue to place pressure on yields,” Singapore Air said in the statement.

Malaysian Air Flight 17 crashed in eastern Ukraine on July 17, killing 298 people on board. That came four months after another aircraft carrying 239 passengers and crew disappeared en route to Beijing.

Singapore Air earlier this year canceled 43 flights to Bangkok as political unrest in Thailand intensified. The number of tourists in Thailand the same month dropped 11 percent from a year ago, the biggest monthly decline since May 2010.

“The outlook for the air transportation industry has become more challenging with continuing uncertain global economic climate, geo-politcal concerns in the region and elevated fuel prices,” Singapore Air said.

Tiger Air, which is 40 percent owned by Singapore Air, on July 24 reported a loss of S$65.2 million in the quarter ended in June, widening from a S$32.8 million loss a year earlier. The budget carrier plans to put more focus on growing its overseas business and ground eight planes to help revive the business after losing money for three straight quarters.

To contact the reporter on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net