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Profits soar at Singapore Airlines

May 12, 2011

SINGAPORE: Singapore Airlines (SIA) rebounded strongly from the global recession, reporting today its full-year net profit soared in 2010-11 as travel demand recovered.

The carrier said it earned S$1.09 billion (US$876 million) in the financial year ended March 31, up fivefold from S$216 million a year ago while revenues rose 14% to S$14.5 billion.

But the airline cautioned that the near-term is expected to be difficult due to surging oil prices, concerns over the US economy, the impact from Japan’s quake-tsunami disasters and worries over Europe’s sovereign debt crisis.

For the fourth quarter ended March, SIA’s net profit came in at S$171 million, down 38.5% from a year ago, largely due to higher fuel expenditures.

A Dow Jones Newswires poll of analysts forecast the carrier’s fourth quarter net profit would rise five percent to S$292 million on improved traffic and demand from premium travellers.

“The year ahead is expected to be challenging for the airline industry,” SIA said.

“These effects are reflected in forward bookings, indicating near term weakness in load factors,” it said.

SIA said escalating jet fuel cost, which has surged by over 25% to US$140 a barrel in the past few months, was also another cause for concern and that management would take steps to adjust to the situation.

“While there has been some respite in the past week, jet fuel prices are likely to remain high and volatile in the near term,” SIA said.

SIA has imposed a fuel surcharge on tickets to mitigate the impact of soaring oil prices but the airline still expects fuel cost, its biggest expense item, to be the biggest challenge.

The carrier, regarded as a bellwether of the airline industry, said fuel cost excluding hedging spiked 24% or S$877 million during the financial year.

“The twin challenges of near-term weakness in load factors and high fuel prices will adversely affect operating performance of airlines,” it said.

“The company will be vigilant in cost management and closely monitor patterns of demand and adjust capacity accordingly.”

SIA said it also set aside S$202 million during the previous financial year in provisions for antitrust fines imposed by the US, the European Union and South Korea on its cargo arm.

Shukor Yusof, an aviation analyst with Standard and Poor’s Equity Research, described SIA’s fourth quarter earnings as a “decent set of numbers”, taking into account the high fuel prices and travel to Japan being affected by the quake and tsunami disasters.

But Shukor said SIA is facing more intense competition from Middle East and some Asian carriers as well as from budget airlines.

“I think SIA needs to re-evaluate its business strategy for the near- to mid-term. They need to position themselves as not just another good premium carrier but to reinstate themselves as the best in the market,” he told AFP.



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