Chan Sue Ling
Singapore Airlines Ltd., the world’s second-biggest carrier by market value, may have its first annual loss as a publicly traded company as the global recession saps travel demand.
The airline had a net loss of S$307 million ($213 million) in the quarter ended June, compared with a profit of S$358.6 million a year earlier, due to “adverse business conditions,” it said in a statement today. If that prevails, the company may have its first full-year loss since listing in 1985, it said.
“It’s a difficult time and most airlines will probably record a loss,” said Jason Teh, who helps manage more than $2.5 billion at Investors Mutual Ltd. in Sydney. “A full recovery for the airlines isn’t going to happen this year.”
The deepest recession since World War II and the spreading swine flu pandemic led to a ten-month drop in global passenger traffic, said the International Air Transport Association, also known as IATA. Airlines in Asia Pacific may lose the most money of any region this year, the trade group said.
The operating loss, or sales minus the cost of goods sold and selling, general and administrative expenses, was S$319 million in the three months to June, compared with a profit of S$343.2 million a year earlier. Sales declined 31 percent to S$2.87 billion.
The first-quarter net loss was the airline’s first since June 2003, when the severe acute respiratory syndrome, or SARS, emptied planes. The group’s cash balance remains strong and the company doesn’t foresee any necessity to raise capital, Singapore Air said.
The number of premium travelers dropped in May for a 12th straight month as companies cut budgets and travelers pick cheaper seats, IATA said. Singapore Air gets about 40 percent of its revenue from first- and business-class clients.
“Singapore Air will be hit worse than the other airlines because of its emphasis on premium travel,” said Kelvin Lau, an analyst at Daiwa Institute of Research Ltd. in Hong Kong.
The carrier flew 3.8 million passengers in the quarter, compared with 4.8 million a year before. It filled an average 71.6 percent of available seats, compared with 76.7 percent a year earlier. That’s lower than the 84.3 percent of seats the airline needed to fill to break even, the statement said.
Passenger yield, or average revenue per seat, dropped to 10.2 cents per kilometer in the three-month period, from 12.4 cents a year earlier, Singapore Air said today.
Air France, Qantas
Singapore Air gained 1.4 percent to S$13.52 at the close of trading today. Earnings were released after the market closed. Of the 21 analysts tracked by Bloomberg in the past 12 months, 10 recommend that investors sell the stock, seven have “buy” ratings, while the remainder have “hold” calls.
Global airlines may rack up losses totaling $9 billion this year as travel slows, said IATA. Air France-KLM Group, Europe’s biggest airline, and Australia’s Qantas Airways Ltd. have also cut capacity and announced plans to reduce their workforce as travel slows.
Singapore Air has started trimming costs. Management will get at least a 10 percent reduction in salary from this month, while Chief Executive Officer Chew Choon Seng will take a 20 percent cut, according to the airline. Pilots have agreed to forgo 65 percent of one day’s wage, pro-rated from their monthly salary. Employees also started working fewer days each month.
Salaries of more than 12,000 employees, including cabin and flight crew, will be cut effective from Aug. 1, Nicholas Ionides, a spokesman for the airline, said in an e-mail today. The airline expects to save about S$60 million in the year ending in March from these cost-cutting measures.
Chew took over as chief executive in June 2003, when SARS left planes half empty and forced the airline to cut jobs, the biggest reduction in two decades. Singapore Air posted a net loss of S$312 million in the quarter ended June 2003.
Spending on jet fuel, the carrier’s biggest expenditure, dropped 33 percent to S$1.03 billion in the quarter. Jet kerosene prices in Singapore averaged $66.68 a barrel in the three months ended June, 57 percent less than a year earlier, according to Bloomberg data. The carrier made a loss on fuel hedging of S$287 million in the period.