Singapore Airlines Tumbles Most in Six Years After Surprise Loss

  • Starts business review after first quarterly loss since 2012
  • Brand SQ has 4Q operating loss; budget unit reports profit

Singapore Airlines Ltd. shares plunged the most in almost six years after reporting a surprise loss because of intense competition, prompting Southeast Asia’s biggest carrier to kick off a review of its business.

The stock slumped 7.3 percent to S$9.98, erasing S$922 million ($663 million) in market value. Chief Executive Officer Goh Choon Phong said Friday he would leave “no stone unturned” in the review.

Intense competition from Emirates, Qatar Airways and Etihad that offer services such as a personal butler and shower on board aircraft has crushed profits at Singapore Air and its Hong Kong-based rival Cathay Pacific Airways Ltd., which is also doing a review of its business. To fight back, Goh is boosting borrowings to fund a record $53 billion order for new planes.

“Evidently, the pressure of the Middle Eastern carriers and the lack of a domestic market is impacting, similar to Cathay,” Joshua Crabb, head of Asian equities at a unit of Old Mutual Plc, said from Hong Kong. Crabb said he doesn’t own Singapore Air stock.

Singapore Air group -- which includes brand Singapore Air, a regional airline and two budget carriers -- announced a net loss of S$138.3 million in the three months ended March. The company also said Friday it was re-integrating the business into the main airline.

Brand Singapore Air had an operating loss of S$41 million in the quarter while Budget Aviation Holdings - which operates the two low-fare carriers Scoot and Tiger -- had a profit of S$22 million at the operating level. The loss at the main airline is the first since the fourth quarter of fiscal year 2014, according to company filings.

The drop in the stock, the biggest since August 2011, is unusual for Singapore Air, according to its historical return histogram graph. The higher the standard deviation, the more unusual the move.

Singapore Air share’s historical return histogram

Goh said Friday that bold and potentially radical actions are needed to tackle costs. The company said it has set up a “dedicated transformation office” to conduct a wide-ranging review, encompassing network and fleet, product and service, and organisational structure and processes “to better position the group for long-term sustainable growth across its portfolio of full-service and budget airline operations.”

“Some changes may be radical, but if needed, we will do it," Goh said at a post-results briefing. Singapore Air expects to provide an update on the plan within six months.

To read the Gadfly column on Singapore Air’s lesson for Cathay, click here

Cathay has embarked on a three-year revamp to cut costs after reporting in March its first loss in eight years. Cathay has set a target to save 30 percent in employee costs at its Hong Kong head office as part of the biggest revamp in two decades.

Passenger yield at Singapore Air, or the money earned from carrying a passenger for one kilometer, fell to 10.1 Singapore cents, hovering around the lowest level in six years.

Singapore Air’s “strategy of aggressive price discounting is not sustainable and the carrier needs to rationalize unprofitable routes, cut capacity or frequency to improve yields and profits,” UOB Kay Hian analysts K Ajith and Sophie Leong said in a note Friday. They maintained their hold rating of the stock.

Singapore Air, the only Asian airline to fly the Concorde and the first in the world to put a double bed, mattress and duvet on a commercial plane and the first to fly the superjumbo A380. When the aircraft entered service in 2007, the plane featured suites created by French luxury-yacht designer Jean-Jacques Coste and cushions from fashion house Givenchy. In 2015, Singapore Air started offering champagne to passengers who flew its premium economy seats.

“Business travel demand has not been very strong and this impacts Singapore Air parent airline, which derives around 45 percent of its passenger revenue from the first and business class cabin,” said Corrine Png, Singapore-based CEO of Crucial Perspective, a research firm focused on Asian transport equities. Long-haul routes are facing overcapacity and there’s pressure on yields, she said.

Singapore Air also announced a total dividend for the fiscal year of 20 Singapore cents per share, compared with 45 Singapore cents last year.

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