• Net profit rises 36 percent, operating profit up 96 percent
  • New rivals, volatile demand weigh on airline's loads, yields

Singapore Airlines Ltd. said its operating environment will remain challenging and travel demand will be volatile as Southeast Asia’s largest carrier faces increased competition from budget rivals.

Net income was S$274.9 million ($195.7 million) for the three-month period ended Dec. 31, compared with S$202.6 million a year earlier, the airline said in a statement to the stock exchange Thursday. Analysts on average were expecting profit of S$224 million, according to data compiled by Bloomberg. Revenue fell 4 percent from a year earlier to S$3.9 billion.

"On the competitive front, expansion of other full-service airlines as well as low-cost carriers, particularly in Southeast Asia, will continue to exert pressure on loads and yields," the airline said in the stock exchange filing.

Singapore Air has bought more planes and started subsidiaries in Australia and India to compete with a surge in budget travel. It has offered to take partly-owned Tiger Airways Holdings Ltd. fully private, and has offered premium economy seats as plunging oil prices allow for cheaper fares.

Multihub Strategy

"It’s better then expected, a strong set of results. Markets will react positively to it," Ajith Kom, a Singapore-based analyst at UOB Kay Hian Pte Ltd., said by telephone. "They’ve always said they see challenges going forward, that’s typical" for the city-state’s flag carrier.

Singapore Air shares fell 0.92 percent to close at S$10.82 before the earnings announcement and are down 11 percent over the past year, compared to a 25 percent drop in the benchmark Straits Times Index.

Singapore Air has been looking to build alliances abroad as part of a multihub strategy. It partnered with India’s Tata Group to start Vistara in January 2015 and owns about 23 percent of Virgin Australia Holdings Ltd. The company’s Scoot unit also teamed up with Nok Airlines Pcl of Thailand to set up NokScoot.

Operating profit for the quarter nearly doubled, up 96 percent to S$288 million. Despite the benefit of lower fuel prices, the company said it lost S$72 million on fuel hedges during the third quarter and S$77 million from the weakening of the local currency against the U.S. dollar. 

Hedging Losses

The carrier has hedged 46.6 percent of its fuel needs for the January-March quarter at S$90 a barrel, it said in the statement. Jet fuel prices in Singapore have slumped 36 percent over the past 12 months to $43.55 a barrel, according to data compiled by Bloomberg.

The parent airline carried 4.83 million passengers in the quarter, up from 4.75 million a year earlier. It filled 80 percent of seats in the three-month period, compared with 78 percent a year ago.

Singapore Air hauled 312.5 million kilograms of cargo in the October-December period, up from 291.9 million kilograms a year ago. It filled 64.9 percent of cargo space on its planes, compared with 65.1 percent a year earlier.

Passenger yield, or money earned from carrying travelers each kilometer, fell to 11 Singapore cents per kilometer on the parent airline, from 11.5 Singapore cents a year earlier. Cargo yield dropped to 28.8 Singapore cents from 33 Singapore cents.

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