Singapore Airlines Ltd. (SIA), Southeast
Asia’s biggest carrier, posted its largest quarterly profit in
two years as jet-fuel hedging gains masked a drop in yields from
carrying passengers and freight.
Profit from hedging jet kerosene tripled in the quarter,
helping Singapore Air’s net income jump 78 percent from a year
earlier to S$160.6 million ($128 million), the carrier said in a
statement yesterday. Passenger yield, or the money earned from
carrying travelers a kilometer, declined 3.5 percent.
The hedging gains helped the carrier trim spending on oil,
its biggest expense, even as jet kerosene prices rose for the
first time in four quarters. Chief Executive Officer Goh Choon Phong this year ordered $17 billion of new, fuel-efficient
aircraft from Airbus SAS and Boeing Co. (BA) in a bid to fend off
competition from carriers such as Emirates and AirAsia Bhd. (AIRA) that
are expanding across Asia.
“It was a positive surprise on the net level with gains
from associated companies and fuel hedging,” said Andrew Orchard, an analyst at CIMB Group Holdings Ltd. in Hong Kong.
“But on the operational side, there are still some concerns
with yields remaining soft.”
Singapore Air earned S$52.1 million from hedging oil in the
quarter, compared with a S$17.3 million gain in the year-earlier
quarter, the carrier said in the statement.
The shares rose rose 0.8 percent to S$10.33 as of 9:43 a.m.
in Singapore trading today, the biggest jump in almost two
months. The stock has dropped 4.1 percent this year. Seven of 19
analysts recommend investors buy the stock, according to data
compiled by Bloomberg. Five say sell and seven suggest holding
the stock.
Syria, Iraq
Oil rose to a two-year high on Aug. 28 amid concern a U.S.-
led assault would widen the Syrian conflict and disrupt Middle
East supplies. Syria borders Iraq, the second-biggest crude
producer in the Organization of Petroleum Exporting Countries,
Bloomberg estimates show. The Middle East accounted for about 35
percent of global oil output in the first quarter of this year,
according to the International Energy Agency.
Jet fuel swaps in Singapore gained 3 percent in the quarter
ended Sept. 30 to $121 a barrel, according to data compiled from
PVM Oil Associates Ltd., a London-based broker.
The carrier has hedged 60 percent of its fuel needs for
October to March at $118 a barrel, the company said in a
statement today.
The airline’s passenger yield fell to 11 Singapore cents in
the quarter from 11.4 cents a year earlier, while cargo yield
dropped to 32.1 cents from 32.7 cents.
Passenger numbers increased 6.3 percent to 4.81 million and
the carrier packed 81.1 percent of available seats.
IATA Forecast
Singapore Air’s surge in profit comes as the International
Air Transport Association said in September that carriers
worldwide are likely to generate a net income of $11.7 billion
this year, 7.9 percent smaller than a June forecast. Airlines in
Asia Pacific are projected to earn $3.1 billion, $1.5 billion
less than earlier estimated amid slow growth in the region’s
emerging economies.
Contribution from associated companies such as Tiger
Airways Holdings Ltd. (TGR) tripled in the quarter to S$36.6 million,
Singapore Air said. The airline posted a gain of S$9.1 million
in the quarter from sale of an aircraft and parts. The company
will pay an interim dividend of 10 Singapore cents a share.
“Advance bookings for the coming months are projected to
be higher compared to the same period last year,” Singapore Air
said in the statement. “However, ongoing promotional activities
necessitated by intense competition and a strong Singapore
dollar are expected to place pressure on yields.”
Singapore Air in September agreed to set up an airline in
India with Mumbai-based Tata Group, owner of the Jaguar and Land
Rover brands, to tap surging travel demand in the world’s
second-most populous nation where the number of air passengers
is forecast to triple to 452 million by 2020.
Plane Order
The new airline, which won initial approval from India’s
Foreign Investment Promotion Board last month, will be based in
capital New Delhi. Tata will hold 51 percent of the venture and
Singapore Air the remainder.
In May, Singapore Air ordered 30 Boeing 787-10X variant
planes and 30 Airbus A350-900s to replace less fuel-efficient
models. The contract also included an option for 20 more
A350-900s which may be converted by the carrier for purchasing
the larger A350-1000 variant.
That was on top of the of the 25 Airbus aircraft worth $7.5
billion, including five A380s, ordered in October last year.
The carrier will next week end its all-business class
service from Singapore to Newark, the world’s longest non-stop
flight. Direct flights between the island city and Los Angeles
ceased last month.
Singapore Air faces increased competition as the alliance
between Qantas Airways Ltd. (QAN), Australia’s biggest, and Emirates
started flights March 31. Singapore Air this year raised its
stake in Virgin Australia Holdings Ltd. (VAH)
To contact the reporter on this story:
Kyunghee Park in Singapore at
kpark3@bloomberg.net
To contact the editor responsible for this story:
Anand Krishnamoorthy at
anandk@bloomberg.net
Singapore Airlines
Munshi Ahmed/Bloomberg
A Singapore Airlines Ltd. Airbus SAS A380 aircraft prepares to land at Changi Airport in Singapore.
A Singapore Airlines Ltd. Airbus SAS A380 aircraft prepares to land at Changi Airport in Singapore. Photographer: Munshi Ahmed/Bloomberg
Singapore Air"s Fuel Hedging Gains Help Mask Yield Drop
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