Singapore Airlines (SIA) has joined the chorus of carriers warning of tough market conditions after reporting a sharp drop in net profit for the three months to September 30 2016 amid low fares and a weak outlook.
The airline group said net profit tumbled 70 per cent to S$64.9 million in the second quarter of its 2017 fiscal year, compared with S$213.6 million in the prior corresponding period.
“The passenger airline business continues to be impacted by geopolitical uncertainty and weak global economic conditions,” SIA said in a statement on Thursday.
“The outlook in most major economies remains tepid. Furthermore, excess capacity and aggressive pricing continue to persist in the market, exerting pressure on loads and yields.”
The grim prospects for air travel followed a profit downgrade from Cathay Pacific in October, when the Hong Kong-based carrier said weak demand and intense competition from rivals had eaten into reeves and pushed down yields.
SIA, Cathay and others have battled the rapid international expansion of Chinese airlines and the ongoing rise of Middle East carriers offering long-haul to long-haul connections through their hubs, which have bitten into previously lucrative markets. And within Asia, low-cost carriers have won passengers happy to pay lower fares for a no-frills product on short- and medium-haul routes.
Further, the economic slowdown – both in China and elsewhere – had led to a significant reduction in premium corporate travel in business and first class, particularly on long-haul routes.
SIA said revenue in the second quarter fell five per cent to S$3.65 billion, while operating profit was down at both Singapore Airlines and Silkair. On a brighter note, SIA’s low cost units Scoot and Tigerair Singapore were profitable in the quarter, reversing the operating losses posted a year ago.
The company said having carriers within the group that catered to both full-service and low-cost segments boosted the airline group’s competitiveness and offered new opportunities for expansion.
“The group will remain nimble and flexible, leveraging its portfolio of airlines to cater to demand in different travel markets, while maintaining cost vigilance,” SIA said.
“The improved operating capability and efficiency of the growing Airbus A350 fleet is enabling the launch of previously unserved new routes.
“The deep integration between Scoot and Tiger Airways continues to provide cost efficiencies and opportunities to enhance network connectivity.”
Despite the lower cost of jet fuel, yields – an industry term measuring revenue per passenger per kilometre – continued to weaken in the second quarter.
At Singapore Airlines, yields fell 3.8 per cent to 10 cents, while they were down 6.8 per cent at regional wing Silkair.
And overcapacity in the freight market had also led to a drop in yields.
SIA said its freight business suffered a S$11 million loss for the three months to September 30, falling deeper into the red from a S$3 million loss in the prior corresponding period.
“Efforts will continue to be focused on higher-yielding product segments to improve the overall traffic mix,” SIA said of its cargo operations.
For the half year, SIA said net profit was up 5.6 per cent to S$321.5 million, as lower fuel prices helped offset revenue declines. The company said net fuel costs for the half fell 25.2 per cent to S$1.84 billion.
SIA described fuel prices as “volatile” given the uncertainty over supply as the Organization of the Petroleum Exporting Countries (OPEC) considered cutting production.