Singapore Air’s Fuel Hedging Gains Help Mask Yield Drop
Singapore Airlines Ltd. (SIA), Southeast Asia’s biggest carrier, posted its largest quarterly profit in two years as jet-fuel hedging gains masked a drop in yields from carrying passengers and freight.
Profit from hedging jet kerosene tripled in the quarter, helping Singapore Air’s net income jump 78 percent from a year earlier to S$160.6 million ($128 million), the carrier said in a statement yesterday. Passenger yield, or the money earned from carrying travelers a kilometer, declined 3.5 percent.
The hedging gains helped the carrier trim spending on oil, its biggest expense, even as jet kerosene prices rose for the first time in four quarters. Chief Executive Officer Goh Choon Phong this year ordered $17 billion of new, fuel-efficient aircraft from Airbus SAS and Boeing Co. (BA) in a bid to fend off competition from carriers such as Emirates and AirAsia Bhd. (AIRA) that are expanding across Asia.
“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 earned S$52.1 million from hedging oil in the quarter, compared with a S$17.3 million gain in the year-earlier quarter, the carrier said in the statement.
The shares rose rose 0.3 percent to S$10.28 at close of trading in Singapore. The stock has dropped 4.4 percent this year. Seven of 19 analysts recommend investors buy the stock, according to data compiled by Bloomberg. Five say sell and seven suggest holding the stock.
Oil rose to a two-year high on Aug. 28 amid concern a U.S.- led assault would widen the Syrian conflict and disrupt Middle East supplies. Syria borders Iraq, the second-biggest crude producer in the Organization of Petroleum Exporting Countries, Bloomberg estimates show. The Middle East accounted for about 35 percent of global oil output in the first quarter of this year, according to the International Energy Agency.
Jet fuel swaps in Singapore gained 3 percent in the quarter ended Sept. 30 to $121 a barrel, according to data compiled from PVM Oil Associates Ltd., a London-based broker.
The carrier has hedged 60 percent of its fuel needs for October to March at $118 a barrel, the company said in a statement today.
The airline’s passenger yield fell to 11 Singapore cents in the quarter from 11.4 cents a year earlier, while cargo yield dropped to 32.1 cents from 32.7 cents.
Passenger numbers increased 6.3 percent to 4.81 million and the carrier packed 81.1 percent of available seats.
Singapore Air’s surge in profit comes as the International Air Transport Association said in September that carriers worldwide are likely to generate a net income of $11.7 billion this year, 7.9 percent smaller than a June forecast. 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.
Contribution from associated companies such as Tiger Airways Holdings Ltd. (TGR) tripled in the quarter to S$36.6 million, Singapore Air said. 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. “However, ongoing promotional activities necessitated by intense competition and a strong Singapore dollar are expected to place pressure on yields.”
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. (QAN), Australia’s biggest, and Emirates started flights March 31. Singapore Air this year raised its stake in Virgin Australia Holdings Ltd. (VAH)
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