Singapore Air Shares Slump After Wider Operating Loss

Singapore Airlines Ltd., Southeast Asia’s biggest carrier, fell the most in more than 1 1/2 years in Singapore trading after lower passenger and cargo fares pushed the company into a wider fourth-quarter operating loss.

Singapore Air slumped 4.5 percent, the most since Nov. 1, 2011, to S$10.93 at close of trading in the city. The stock has risen 1.7 percent this year compared with an 8.9 percent gain in the benchmark Straits Times Index.

The airline said yields will probably remain under pressure and forward passenger bookings for the next few months are “almost flat” compared with the year-earlier period. Chief Executive Officer Goh Choon Phong is adding more planes, including Airbus SAS A380s, and has upgraded business-class cabins as he faces increasing competition from Emirates and other airlines expanding in Southeast Asia.

“The main question is, are they able to improve passenger yields,” said Siyi Lim, an analyst at OCBC Investment Research, who cut his rating on the stock to sell from hold. “It’s more of increasing competition in the space and how are they going to deal with it. If demand doesn’t pick up, then that will be a problem.”

Singapore Air’s operating loss widened to S$44.2 million ($35 million) in the three months ended March from S$5.2 million a year earlier, the carrier said yesterday. Still, it had a net income of S$68.3 million in the period, compared with a S$38.2 million loss a year earlier, as sales of aircraft and engines helped offset the operating loss. That compares with the S$67.7 million average of three analysts’ profit estimates compiled by Bloomberg.

Spares, Engines

Sales in the quarter fell 1 percent to S$3.67 billion, the carrier said. Singapore Air had a surplus of S$54.7 million in the fourth quarter on sale of aircraft and spare parts. The gains came from the sale and lease back of some A380s and Rolls-Royce Trent engines, Goh said today.

In the year-earlier quarter, the company posted a loss from retiring its last Boeing Co. 747-400 plane.

In October, Singapore Air ordered 25 Airbus aircraft worth $7.5 billion in list prices, including the double-decker A380, to replace less fuel-efficient models. The carrier also said it would stop this year the world’s longest non-stop flights, from Singapore to Newark, New Jersey, and Los Angeles.

“The global economic outlook remains uncertain with the ongoing weakness in the Eurozone and sluggish recovery in the United States,” Singapore Air said. “The cargo business faces an additional issue of overcapacity in the market, which will add pressure on loads and yields. Furthermore, fuel prices remain persistently high.”

Cargo Yields

Passenger yield, the average price a traveler pays to fly one kilometer, fell to 11.2 Singapore cents in the quarter from 11.7 cents a year earlier, Singapore Air said. Yields from carrying cargo dropped to 33 cents from 35.2 cents.

The airline carried 4.5 million passengers during the January-March quarter, compared with 4.34 million a year earlier, according to company’s monthly filings to the Singapore stock exchange. The carrier filled an average 78.6 percent of its seats in the period, compared with 77.6 percent a year ago.

Singapore Air and its SilkAir Singapore Pte. unit would adjust their capacities to “weaker markets” between April and June, the carrier said.

The airline hedged 57 percent of its fuel needs for the year ending March 2014 at an average price of $119 a barrel, the company said in a statement today.

Singapore Air in December sold its 49 percent stake in Virgin Atlantic to Delta Air Lines Inc. for $360 million. The carrier had earlier written down its investment in the U.K. carrier controlled by billionaire Richard Branson. The deal will be completed once regulatory approval is obtained.

Qantas, Emirates

Singapore Air faces increased competition as the alliance between Qantas Airways Ltd., Australia’s biggest carrier, and Emirates started flights on March 31. The agreement with the Dubai-based airline cuts average journey times by more than two hours from Melbourne and Sydney to the top 10 destinations in Europe.

To compete, Singapore Air last month said it will increase its stake in Virgin Australia to 19.9 percent for A$122.6 million ($120 million). It raised its holding from 10 percent after Virgin Australia received regulatory approval to buy 60 percent of the local unit of Tiger Airways Holdings Ltd.

Singapore Air is the largest investor in Tiger, a short-haul low-fare airline that competes with AirAsia Bhd., Lion Mentari Airlines PT and more than 10 other budget carriers that fly in Southeast Asia.

Last year, Scoot, a medium-haul budget airline fully owned by Singapore Air, started flying with Boeing 777 aircraft. Singapore Air transferred its orders for Boeing 787 Dreamliners to Scoot.

No-Pay Leave

To cut costs, Singapore Air is offering captains voluntary no-pay leave, similar to the offer it made for first officers last year. The company has a “temporary” surplus of captains, spokesman Nicholas Ionides said in January. The carrier the same month said it will release 76 pilots who were employed on a fixed-term basis by June 30, before their contracts expire.

Global airline passenger traffic may rise 5.4 percent in 2013, while cargo markets are projected to increase 2.7 percent, the International Air Transport Association said in March. Passenger traffic grew 4.2 percent in the first quarter, boosted by the expansion of Middle Eastern and Asia-Pacific carriers, IATA said on May 1. Cargo demand fell 1.1 percent in the first three months.

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