SINGAPORE: Singapore Airlines booked net profit of 64.9 million Singapore dollars ($46.8 million) for the quarter ended September, a hefty 69.6% year-on-year decline, with industry-wide competition and a capacity glut continuing to erode the carrier’s pricing power on both the passenger and cargo fronts.
Singapore Airlines blamed the sluggish global economy for the weak result. Revenue for the quarter declined 5.1% year-on-year to S$3.65 billion. Passenger volumes at the full-service brand Singapore Airlines fell by 4.6%, while passenger yield, the airline’s unit revenue for flying one passenger a kilometer, weakened by 3.8%. Operating profit for the full-service airline fell 19.3%.
The cargo segment also continued to struggle. Although cargo volumes increased 8.2%, cargo yield fell 15.7% due to excess capacity in the market. SIA Cargo booked a S$11 million operating loss, S$8 million more than a year ago. Losses derived from Virgin Australia, of which Singapore Airlines owns 23%, also dragged down non-operating profit.
The low fuel price, which helped the company reduce fuel expenditure by S$265 million or 22% from a year ago, itself is accelerating the yield decline, according to Executive Vice President Mak Swee Wah. Many airlines “have the margin [now, thanks to the low cost of fuel], and in order to fill up the flights, they are engaged in discounting,” Mak told a press conference on Friday. Stressing that this issue is shared by all major airlines in the world, Mak warned, “so long as this condition continues to prevail, we will continue to see pressure on yield.”
The bright spot of the July-September quarter was the performance of the two low-cost carriers in the group, Tigerair and Scoot. Both of them turned profitable at the operating level from losses booked a year ago.
In order to maximize the growth potential of the LCC business, which is still growing in Asia but is extremely competitive, Singapore Airlines has decided to drop the 12-year-old Tigerair name. The company announced on Friday that it will fully integrate its two LCCs under the Scoot brand in the second half of 2017, to achieve synergies on both cost and revenue.
“We can gain from the single brand, from the synergy of single marketing, as well as communicating the stronger brand benefits to a larger pool of customers, therefore getting more customers overall,” Lee Lik Hsin, chief executive of Budget Aviation Holdings, the holding company of the two LCCs, said at the press conference.
Through the LCC integration, Singapore Airlines aims to increase the number of transit passengers in the budget segment, with more passengers flying into Singapore and out to other destinations, because the only way for airlines based in the city-state to grow is by picking up passengers from other countries. Currently, the transit traffic between Scoot and Tigerair remains small, at less than 5% of total passengers.
