Singapore Air's Second-Quarter Profit Soars on Tiger Air

  • Airline has added premium economy seats, ordered new planes
  • Passenger numbers rise slightly, passenger yield declines

Singapore Airlines Ltd., Southeast Asia’s biggest carrier, posted profit that more than doubled after adding a budget carrier’s earnings into its own account.

Net income for the Singapore Airlines group jumped to S$213.6 million ($151.8 million) in the quarter ended September, from S$90.9 million a year earlier, Singapore Air said in a statement Thursday. Analysts were expecting S$157.3 million, according to the average of three estimates compiled by Bloomberg. Sales dropped 1.5 percent to S$3.84 billion.

Chief Executive Officer Goh Choon Phong has ordered new planes, is adding premium economy class seats and has formed ventures in Australia and India to counter mounting competition from budget airlines and Middle Eastern carriers. The slump in oil prices over the past year has made air fares cheaper, encouraging more people to travel. Profit jumped in the July-September quarter when earnings of subsidiary Tiger Airways Holdings Ltd. were included, Singapore Air said. 

“They have been cutting capacity,” said K. Ajith, an analyst at UOB Kay Hian Pte. in Singapore. “The question is to what extent the improvement in loads will offset by lower yields. Airlines have been filling seats at the expense of yields, and this trend will likely continue.”

Promotional Activities

Singapore Air shares rose 1.2 percent to close at S$11.15 before the earnings announcement. Seven of 18 analysts recommend investors buy the stock, according to data compiled by Bloomberg. Nine say hold and two have a sell rating.

The group’s operating profit in the quarter dropped 2.3 percent to S$129 million. Excluding Tiger Air, operating profit rose 5.3 percent to S$139 million as other subsidiaries, such as SilkAir and SIA Engineering Co., reported better results, Singapore Air said. Operating profit for the main airline dropped 29 percent to S$98 million.

“Yields remain under pressure in the face of capacity additions from other airlines,” Singapore Air said in the statement. “Advance passenger bookings for the October-December quarter are positive, but mainly bolstered by promotional activities.”

The airline carried 4.98 million passengers in the quarter, slightly higher than 4.89 million a year earlier. It filled 83.7 percent of seats in the three-month period, compared with 81.9 percent a year ago.

Singapore Air hauled 282.5 million kilograms (622.8 million pounds) of cargo in the July-September period, up from 277.1 million kilograms a year ago. It filled 60.3 percent of cargo space on its planes, compared with 62 percent a year earlier.

Fuel Hedging

Passenger yield, or money earned from carrying travelers each kilometer, fell to 10.4 Singapore cents from 10.9 Singapore cents a year earlier as more capacity was added, the airline said. Cargo yield dropped to 29.9 Singapore cents from 33 Singapore cents.

Savings from lower fuel prices were partially offset by hedging losses, the company said. For the second half of the fiscal year, the airline has hedged 50.7 percent of its fuel needs for the six months to March 2016 at an average price of $93 per barrel.

Average jet fuel prices in the July-September period fell 47 percent from a year ago to $61.23 a barrel in Singapore, according to data compiled by Bloomberg. The price closed 1.8 percent higher at $60.57 Wednesday.

Singapore Air is planning to revive the world’s longest flight -- a 19-hour service to New York that it discontinued in 2013 -- using an ultra-long range version of Airbus Group SE’s A350 that will be delivered in 2018. The airline ordered seven of the planes for the nonstop flight. 

The carrier also is enhancing cooperation between its two budget units. Members of Singapore Air’s mileage program, KrisFlyer, can earn miles when they fly on low-fare subsidiaries Scoot and Tiger Air.

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