Singapore Airlines Ltd. (SIA) posted a worse-than-estimated 54 percent drop in quarterly profit after losses at its cargo unit tripled.
Net income fell to S$90.1 million ($74 million) in the three months ended September from S$194.2 million a year earlier, the airline said in a statement yesterday. Analysts expected a profit of S$141 million, based on the average of five estimates compiled by Bloomberg. Revenue rose 2.5 percent to S$3.8 billion.
Losses at the cargo unit jumped to S$50 million amid a global trade slowdown and rising competition from Middle East carriers. The airline, the world’s second-largest by market value, said it will further reduce cargo capacity by parking one of its 13 Boeing Co. 747 freighters for more than a year.
“There’s very weak demand, and it’s very difficult to change that,” said K. Ajith, an analyst at UOB-Kay Hian Research Ltd. in Singapore. “SIA is doing the right thing by cutting cargo capacity.”
UOB-Kay Hian had expected the cargo unit to post a S$37 million loss for the quarter, he said.
Operating profit at the main airline unit fell 5.6 percent to S$84 million in the second quarter. The engineering division’s earnings fell 5.9 to S$32 million, while regional carrier SilkAir boosted operating profit 46 percent to S$19 million. The figures were derived by subtracting first-quarter earnings from the first-half results.
The airline cut its interim dividend to 6 Singaporean cents from 10 Singaporean cents a year earlier. The 747 freighter will be parked from January until May 2014, according to a separate statement. The move follows cuts in long-haul freighter flights earlier this year.
“The air-cargo market remains badly depressed and the near-term outlook continues to be challenging,” SIA Cargo President Tan Kai Ping said in the statement. “Freight rates have declined to a level where certain flights are no longer viable.”
Global cargo volumes fell 0.6 percent in September from August, according to the International Air Transport Association. Freight load factors were 45.6 percent in the period.
Singapore Air rose 0.7 percent to S$10.58 in the city-state yesterday before the release of its results. It’s risen 4.1 percent this year, trailing a 15 percent gain for the benchmark Straits Times index.
Passenger yield, a measure of average fares, at the main airline unit dropped 2.6 percent in the quarter as the carrier lowered ticket prices to lure travelers. Passenger numbers rose 5.1 percent to 4.5 million. The carrier filled 79.8 percent of seats, matching its break-even load factor.
“Passenger traffic is slowly growing but yield is under pressure,” said Andrew Orchard, an analyst at CIMB Securities Ltd. in Hong Kong. “For the big legacy carriers, that’s still the issue.”
Singapore Airlines this week agreed to buy a 10 percent stake in Virgin Australia Holdings Ltd. (VAH) for A$105 million ($109 million). The company is facing rising competition on Australia- Europe routes from fast-growing Gulf airlines led by Emirates. Singapore Air also this year formed long-haul budget unit Scoot.
The carrier said Oct. 24 it would end the world’s longest non-stop flights, from Singapore to Newark, New Jersey, and Los Angeles. It announced plans to buy 25 Airbus SAS aircraft worth about $7.5 billion at list prices to replace less fuel-efficient models the same day.
Separately, Japan Airlines Co. yesterday raised its full- year profit forecast 7.7 percent as cost-cutting efforts help it weather a slowdown on China routes caused by a territorial dispute. The carrier expects to make a profit of 140 billion yen in the year ending March, compared with an earlier forecast of 130 billion yen.