May 12, 1999
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| May 12, 1999 | atimes.com | |
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| Southeast Asia Singapore Airlines set to post profit fall Bloomberg News SINGAPORE - Singapore Airlines Ltd., the island state's national carrier, is expected to post a 24 percent drop in profit for the year ended March, hurt by fewer passengers and less cargo from recession-torn Asia. The airline, commonly called SIA, is expected to report profit of S$793 million (US$463 million), down from S$1.04 billion in 1998, according to a Bloomberg News poll of five analysts. While that's one of the steepest profit declines in SIA's history, it will still make the airline Southeast Asia's most profitable, and analysts expect the company to keep its lead. ''SIA has an unbeatable advantage - no airline has a better balance sheet - which has been used to create the best brand in the business,'' said John Casey, a director of Asian transportation research at Dresdner Kleinwort Benson Securities in Singapore. Results are expected on Friday after 5 p.m. local time. Most of the region's airlines, from Hong Kong's Cathay Pacific Airways to Malaysian Airline System Bhd. reported losses, hurt by a fall in passenger traffic, over-capacity among regional airlines and stiff fare competition. Cathay last year reported its first loss since 1963 and doesn't expect earnings to improve anytime soon, as slower economic growth in Asia - its main market - eats into its earnings. ''SIA has a global franchise - they have tapped into the U.S and Europe; by contrast, Cathay's is more a North Asian network, '' said Lawrence Lye, a research manager at DBS Securities. Analysts estimate that Asia accounts for 45 percent of SIA's sales, with Europe and America accounting for about 40 percent of revenue. While airline traffic is picking up as the region claws out of recession, revenue per passenger, or yield, still remains low, analysts said. ''Although the traffic has improved, the yield has been coming down,'' said Goh Mou Lih, strategist at Daiwa Institute of Research (Singapore) Pte., who rates SIA a ''hold.''' ''The improvement has come mainly from the economy class as travelers have been downgrading their traveling patterns. Load factor has also declined because of weaker performance of its cargo." For the year just ended, overall yields, which is a measure of operating revenue to loads carried, may have fallen 10 percent from a year ago, analysts estimate. ''Overall, cargo load factor has remained down and some of the units will be a drag on the earnings,'' said Nua Wee Boon, an analyst at Fraser Securities Pte. in Singapore. SIA's regional carrier SilkAir and its support services units like aircraft maintenance will also likely see a decline in profit because of the cutback in flights in the region. Passenger loads have been picking up for the airlines in the region. And with Singapore's export-driven economy set to expand this year, SIA's cargo load may also improve. The airline is also expected to gain from the 10 percent cut in central provident fund or pension fund contributions to employees. It's among the largest private sector employers in Singapore. Singapore Airlines has also benefited from the fall in the value of its currency. The depreciating Singapore dollar has come as a blessing for the airline, even as a falling ringgit kicked Malaysian Airline into a loss for the first half ending Sept.30. For MAS, the falling ringgit meant rising cost of repaying foreign debt. SIA has no foreign debt. The falling Singapore dollar instead helped the carrier earn more revenue as it converted money earned in U.S dollars and European currencies from tickets and services sales in those countries. Its ability to remain profitable has helped SIA order Asia's first longest-haul jets, the A340-500 - which will help it fly non-stop to destination in the U.S and Europe. The track record of the airline has helped its local shares outperform the benchmark Straits Times index - gaining 58 percent this year against a 41 percent rise in the Straits Times Index. | |||||||||
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