SIA's Q1 profit falls amid stiff competition

HEADWINDS: SIA had a 52 per cent fall in its first-quarter operating profit. The airline is heading to new markets and exploring the low-cost segment.


    Jul 31, 2014

    SIA's Q1 profit falls amid stiff competition

    SINGAPORE Airlines (SIA) reported a 52 per cent fall in its first-quarter operating profit, missing analysts' forecasts, as intense competition for passengers and cargo squeezed yields of Asia's second-biggest airline.

    "Aggressive fares and capacity injections from competitors will continue to place pressure on yields," the airline said in a statement yesterday.

    Battling intense competition from Gulf airlines and discount carriers, SIA chief executive Goh Choon Phong is pushing Singapore's premium airline into new markets, including India, while increasing the group's exposure to the low-cost segment through its fully-owned subsidiary, Scoot, and affiliate, Tiger Airways Holdings.

    SIA said the share of profits from associated companies dropped, mainly because of losses at Tiger Airways Holdings.

    Travel demand to Thailand has eased since the May imposition of martial law, while the two crashes involving Malaysian Airlines planes threaten to slow visitor arrivals to the South-east Asian region.

    An overcapacity in the global air freight market is also hitting SIA, whose cargo unit still reported an operating loss.

    SIA, which has a market value of US$10.3 billion (S$12.8 billion), reported an operating profit of S$39.5 million in the quarter ended last month versus S$81.7 million a year ago.

    This compared with an average forecast of S$46.1 million in a Reuters survey of five analysts, though the estimates varied widely. One other analyst estimated an operating loss of S$43 million.

    "Looking at the competition and what is coming in terms of capacity, we think that the next one to two years will continue to exert pressure on yields. We will have to manage our costs better, including fuel costs, in order to stay competitive," SIA chairman Stephen Lee said on the sidelines of the company's shareholders' meeting.

    Five analysts have a "sell" rating on SIA, six rate it as a"buy" and 10 have a "hold" recommendation. The shares closed unchanged at S$10.60 before the earnings announcement.