SIA net earnings down for fifth consecutive quarter

Victoria
By Victoria February 2, 2012 18:27

SIA net earnings down for fifth consecutive quarter


 

Singapore Airlines, second in the Aviation 100 airlines poll to Emirates, has reported that net profit in its fiscal third quarter fell 53% from the same period last year, a fifth straight quarter of reduced earnings, as fuel prices continue to steadily rise whilst demand falls.

 

Net profit for the three months to December 31, 2011 fell to S$135.2m (US$ 108.4m) from S$288.3m for the same period the year before. The result was about S$20m lower than most forecasts. It is not all bad though as revenue at the airline held firm, rising 1% to S$3.88 billion, which continues to impress in this market. However in increasing signs that we are only on the verge of a sharp decline, SIA warned that: “Forward bookings continue to show signs of weakness in the final quarter of the financial year, due to uncertainty in the global economy and the protracted euro zone debt crisis.”

 

SIA said that fuel costs rose 33% to S$1.51bn in the third quarter. The flag carrier flew 4.4 million passengers in the third quarter, a year-on-year decrease of 0.3%. Passenger carriage in RPK terms was flat, while capacity, measured by ASKs, grew 3.3%. As a result, passenger load factor declined 2.5 percentage points to 77.2% in the third quarter, according to the statement. Passenger yields are expected to remain under pressure while cargo yields are expected to continue to decline.

 

For the nine months to December 2011, Singapore Airlines posted a net profit of $374m, a decline of 59% from the $921m for the same period in the previous year. Group revenue rose 2% to S$11.15 billion while expenditure rose 10% to S$10.86bn on the back of higher fuel costs. Singapore Airlines has returned three Boeing B777-300s during the quarter as leases expired.

 

Let these figures be a warning of what is to come. The strongest and best run airlines are seeing profits tumble as aircraft pre-delivery payments are falling due. SIA has been through this before and has come out of it strong, it will again. Many will not. Once again it is very important to note the potential benefits of a fuel hedge in this current market of instability, conflict and uncertainty. If you do not have a fuel hedge, then get one. The brave who got good prices on hedges 12 months ago should be commended.

 

Do you know who your client is?

 

A story has been published recently regarding the sale of an aircraft that ended up in Iran against embargo. While have been legally unable to report on that transaction since December, we can tell you that the same company who bought the A340 aircraft approached another firm to purchase a clapped-out A320 for double its appraised value. Since the FBI has launched an investigation into the whole affair however the buyer has gone very quiet. In this case the seller’s suspicions were already aroused by the large amount of money the buyer was offering and requested further documentation to prove who they were acting for that they couldn’t provide. This case raises the issue of the importance of Know Your Customer/Client rules. The majority of firms already have stringent compliance checks in place to ensure sanctions are not breached but fraudsters can be very convincing and can often have much of the required paperwork necessary to pass a normal compliance check. In these tense times, firms need to be extra diligent in KYC compliance checks due to the myriad of political/economic embargos in place. Breaching the rules can cost millions and even involve jail time.

Victoria
By Victoria February 2, 2012 18:27
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