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Singapore Air profit drops as fuel price soars

SINGAPORE - First quarter profit at Singapore Airlines dropped 15 percent due to costlier jet fuel but earnings from partners helped it beat market expectations.

Analysts said Singapore Air's cost control and focus on premium travel helped it overcome the challenge of soaring fuel costs and dwindling demand.

Profit from stakes in businesses such as budget carrier Tiger Airways, aircraft engineering and maintenance firms, and other aviation-related companies, was at S$89.6 million ($65.7 million), more than triple the S$25.9 million a year ago.

The group said April-June net profit was S$358.6 million ($263 million) compared with S$424 million a year ago and beating an average forecast of S$286 million.

Fuel expenditure, which represents 40 percent of costs, rose 31 percent to S$1.53 billion, partly mitigated by hedging gains of S$349 million.

Jet fuel traded in Singapore has come off a peak hit this month above $181 per barrel but is still about 80 percent above levels seen a year ago.

Sky-high fuel

The International Air Transport Association (IATA) issued a gloomy outlook in June, forecasting a $6.1 billion loss for the industry in 2008 -- a sharp turnaround from the $4.5 billion profit it predicted in April -- blaming sky-high fuel prices.

Shares in Singapore Air ended Monday's session down 0.9 percent at S$15.28 before the results were released. It will hold its annual general meeting on Tuesday.

Revenues at the airline, which relies on premium and business travellers for half its sales, climbed to S$4.13 billion compared with S$3.6 billion a year ago.

Singapore Air, 55-percent owned by sovereign fund Temasek, has reported five straight months of falling passenger and cargo loads, as demand failed to keep pace with higher capacity boosted by the delivery of five Airbus A380 superjumbos.

The group also saw lower contributions from its listed subsidiaries as they were hit by rising costs and falling demand.

SIA Engineering reported a 17 percent fall in earnings, while Singapore Airport Terminal Services' profit fell 28 percent. The airline owns 81 percent in both.

But its regional unit SilkAir posted operating profit of S$10 million in the quarter, up 79 percent from a year ago.

Cutting routes

The carrier said it stopped unprofitable routes, including five weekly flights to Osaka via Bangkok from May 2008, and the four weekly flights to Los Angeles via Taipei from October 2008.

Singapore Air, with Temasek, in February failed to take a combined 24 percent stake in China Eastern Airlines for $920 million, but could still bid for the Chinese carrier in order to break into the world's fastest-growing aviation market.

Analysts estimate that Singapore Airline has about S$4 billion in cash on its books, which they expect could be boosted by further aircraft sales, after it said earlier this month it had sold five Boeing 777 to Pembroke Group and leased them back.

Its shares are down 12 percent so far this year, outperforming the benchmark Straits Times index's 16 percent fall and regional rivals Qantas, which fell 36 percent, and Cathay Pacific, which lost 24 percent.