Singapore Airlines had a bad start to its financial year, ending the first quarter with earnings down 70 percent as yields weakened in the face of intense competition from regional and Middle East airlines.
The carrier began its financial year in April, recording net income of just $28 million for the quarter against $89 million last year as it struggled against a wave of low-cost and Gulf competition making use of Singapore’s ideal geographical position in Southeast Asia.
Singapore Airlines Cargo continued to be a drag on earnings, losing $14 million, and even though that was a significant improvement on the $32 million the division lost during the same quarter of last year, revenue from air freight fell.
“SIA Cargo’s operating performance improved by 55 percent, as a result of ongoing efforts to better match capacity with demand,” the carrier said in a statement.
“Overcapacity in the market will continue to impact the cargo business, notwithstanding a slow recovery in airfreight demand. SIA Cargo is targeting specific product segments and traffic lanes to boost performance,” the company said.
Fuel costs made up almost 40 percent of the carrier’s total costs last year, and Singapore Airlines has been paring down its aging freighter capacity, removing a surplus Boeing 747-400F from the fleet in May. The cargo fleet stands at eight B747-400Fs.
Singapore Airlines is fighting off a wave of low-cost carriers serving Southeast Asia via the Changi Airport hub as well as battling Middle Eastern airlines such as Emirates and Qatar Airways on routes to the U.S. and Europe.
Air freight exports out of Asia have been showing a steady recovery in the run up to mid-year. For the region's carriers, demand for air freighted goods continued to grow in the month of June, helped by positive consumer and business sentiment in major developed economies.
Singapore Airlines’ cargo results are in stark contrast to those of Cathay Pacific. The Hong Kong carrier will present its interim results later in August, which will report strong growth in air cargo volume.
Robust demand out of Hong Kong and China, particularly on trans-Pacific routes, saw Cathay Pacific year-to-date figures remaining well in positive territory in the first half, with cargo tonnage up 8.6 percent, capacity up 11 percent and revenue per ton kilometre growing by 12 percent. Load factors grew 3.2 percent to 64.9 percent.
During the second quarter, combined air cargo traffic at Cathay Pacific, Singapore Airlines and Air China improved 7.4 percent, ahead of a 7.3 percent increase in capacity, according to Citi Research. That is against a 2.5 percent decline in air cargo traffic at the airlines during the same period last year.
Association of Asia Pacific Airlines (AAPA) director general Andrew Herdman said air freight demand in freight tonne kilometers grew by “an encouraging 4.7 percent” compared to the same month last year. The average international freight load factor rose for the second consecutive month, by 0.8 percentage points to 66.1 percent in June, with 3.4 percent growth in offered freight capacity.
"The overall traffic demand environment in the region is still expected to be positive, supported by continued growth in regional economies and further improvement in the U.S. and European economies,” Herdman said.
However, he warned that competitive pressures remained intense, forcing Asian airlines to keep a close watch on costs while carefully managing capacity.
A recent IATA survey found airline CFOs and heads of cargo were broadly positive about the outlook for the air freight industry and expected profitability to improve.
The optimistic responses from cargo executives reflected recent developments in the demand environment. Respondents reported growth in air freight volumes over recent months, which was consistent with freight data and the resumption in growth in business confidence and world trade volumes.
The IATA business confidence survey found the outlook for cargo volumes remained positive, with 56 percent of respondents expecting an increase in demand over the next 12 months.