State-controlled Singapore Air, the world's No 2 carrier by market value, suffered a 15-percent drop in quarterly profit due to high jet fuel costs and said fuel costs would remain a problem for the foreseeable future.
Singapore Airlines, 57-percent-owned by state investment arm Temasek, said on Friday it spent S$1.33 billion ($850 million) on fuel in the second quarter of its 2006/07 fiscal year, up 27 percent from a year ago.
Speaking at a results briefing, Chief Executive Chew Choon Seng predicted that jet fuel would remain at its current level for the next 12 to 18 months. He said the recent decline in fuel prices was due to technical and seasonal factors.
But the airline also said it expected demand for air travel to remain buoyant thanks to economic growth in Europe and Asia. It said 40 percent of its total expenditure in the second quarter of its 2006/07 business year was fuel.
The price of Singapore-traded jet fuel, the airline's biggest single expense, has risen by almost a third this year, hitting a record $93.20 a barrel in August. It has since dropped to around $73 in tandem with the price of oil, though is still 5 percent higher than at the start of 2006.
Singapore Air said July-September profit fell to S$293 million from S$343 million a year ago and was well below the S$367 million average by two analysts polled by Reuters. The company had recorded its first quarter of rising profit in the three months to the end of June after six consecutive quarters of declining earnings.
Earlier this week, Singapore Air's rival Deutsche Lufthansa raised its full-year earnings forecast and said it was optimistic about the coming months and expected satisfactory yields at the passenger airline, despite high fuel costs.
For the full year to March, Singapore Air's net profit is expected to increase 23 percent to S$1.53 billion, according to 14 analysts polled by Reuters Estimates before Friday's results. Earlier this month, Singapore Air trimmed its fuel surcharges after a fall in jet fuel prices.
Quarterly sales rose 7.7 percent to S$3.6 billion, while total expenditure rose 10 percent to S$3.3 billion. The International Air Transport Association (IATA), an industry lobby group, predicted in August that airlines world-wide will lose $1.7 billion this year and spend $115 billion on jet fuel. According to IATA, airlines lost $3.2 billion in 2005. Singapore Air faces increasingly tough competition and has been jolted by problems at Airbus that have delayed delivery of the new $300 million A380 superjumbo.
The Singapore carrier had planned to make the first commercial A380 flight from London Heathrow this year, but won't now get the planes until at least next October. CEO Chew said on Friday that the airline was still in discussions with Airbus about compensation for the delays. "We will be driving hard for a fair settlement," Chew said. Shares in Singapore Air value the airline at more than $12 billion, ranking it behind only Southwest Airlines of the United States.
The stock has risen 26 percent so far this year, just beating a 25 percent gain by Hong Kong rival Cathay Pacific Airways and well ahead of Australia's Qantas Airways' 5.7 percent increase.
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