Singapore Airlines (SIA) has reported a drop in third quarter net profit amid higher fuel prices and says ongoing geopolitical tensions across the globe have cast a cloud over the outlook for travel for the period ahead.
The warning came as the airline group said net profit for the three months to December 31 2018 – the third quarter of its fiscal 2019 financial year – fell 27 per cent to S$284 million, compared with S$389 million in the prior corresponding period. The result was slightly above market expectations.
Revenue rose 6.5 per cent to S$4.34 billion, SIA said in a regulatory filing to the Singapore stock exchange (SGX) on Thursday afternoon.
The airline group, comprising flying brands Singapore Airlines, regional wing Silkair and low-cost carrier Scoot as well as an engineering business, said the revenue growth has helped offset a steep 22 per cent increase in fuel costs in the quarter.
Looking ahead, SIA said the trade dispute between the United States and China, as well as the United Kingdom’s looming March 29 2019 departure from the European Union, had the potential to affect demand for air travel.
“Overall passenger bookings in the forward months are tracking capacity growth, however uncertainties surrounding US-China tariffs and their consequent effects on global trade flows, as well as Brexit, are clouding the overall demand outlook for both passenger and cargo,” SIA said.
“SIA will continue to be nimble and proactive in responding to pockets of weakness or opportunity by rebalancing supply across the network.”
All of SIA’s airlines were profitable in the quarter.
However, only one, Singapore Airlines, managed an improvement in operating profit, or earnings before interest and tax (EBIT), which rose by S$3 million to S$369 million.
The airline improved load factors – an industry measure of how full its flights are – 1.8 percentage points to 83.4 per cent, the highest ever for a third quarter, as demand exceeded the growth in capacity.
Singapore Airlines has been in expansion mode in recent times, as it launched new nonstop flights between Singapore and the United States.
The airline reclaimed the title of the world’s longest passenger flight when it resumed nonstop Singapore-New York Newark services with Airbus A350-900ULR (Ultra Long Range) aircraft in October 2018. Singapore-Los Angeles followed in November.
Looking ahead, Singapore Airlines is commencing nonstop flights to Seattle nonstop in September.
Scoot suffered a sharp decline in EBIT, which tumbled to just S$1 million, compared with S$43 million in the prior corresponding quarter. Scoot is integrating the previous operations of short-haul LCC Tigerair Singapore with its own long-haul network as part of the merger of the two airlines in 2016.
Finally, EBIT more than halved to S$7 million at Silkair, from S$19 million previously. Silkair is being brought under the main SIA brand, with the company having said previously it planned to spend $100 million to upgrade the regional carrier’s cabins to offer closer product and service consistency for passengers.
“Higher fuel cost remains a challenge for the group airlines,” SIA said.
Global oil prices had a volatile 2018. In October, Brent Crude Oil reached four-year highs of close to US$86 per barrel as tensions in the Middle East and the United States imposition of sanctions on Iran sent jitters through commodities markets.
However, crude then began steady retreat to its lowest level in more than 12 months at about US$62 a barrel in December as fears of reduced supply from the Iran sanctions proved overblown.
At February 8 2019, the International Air Transport Association (IATA) jet fuel price monitor was down about 1.1 per cent from a year ago.
SIA said its three-year transformation program, which was established in 2017 to conduct a wide-ranging review of the airline group’s network, fleet, product and service, as well as organisational structure and processes, had made “significant progress” amid a challenging operational environment.
“The group’s suite of services and products launched over the past year, including new non-stop services and cabin upgrades, helped enhance the customer experience and grow revenue, while realising operational and cost efficiencies,” SIA said.
“While the numerous industry accolades received over the past year are testament to the Group’s efforts to strengthen its leadership position, the SIA Group will sustain its transformation momentum to bolster its competitive edge in the face of challenging operating conditions.”
Singapore Airlines is Australia’s largest foreign carrier. It flew 8.1 per cent of all international passengers into and out of the country in the 12 months to June 30 2018, according to figures from the Bureau of Infrastructure, Transport and Regional Economics (BITRE).
The airline group’s market share is even greater when Silkair’s flights to Cairns and Darwin and Scoot’s services to the Gold Coast, Melbourne, Perth and Sydney are included.
VIDEO: A look at the start of Singapore Airlines operating Airbus A380s to Sydney with its new cabin products in suites and business class in November 2017 from the airline’s Youtube channel.