Cathay Pacific, Singapore Air Slump as Fuel Hits Earnings

Cathay Pacific Airways Ltd. (293) fell the most in more than seven months and Singapore Airlines Ltd. (SIA) tumbled after the carriers said that higher fuel prices and waning demand had hit earnings.

Cathay plunged as much as 5.4 percent as of 10:25 a.m. in Hong Kong, the biggest intraday decline since Sept. 26, after cutting growth plans and predicting “disappointing” first-half earnings. Singapore Air dropped as much as 2.6 percent, the most in two months, after reporting a surprise quarterly loss.


Cathay said that yields, a measure of average fares, were “softening” in premium cabins as economic concerns damps travel demand. The slowdown has also hit freight shipments and prevented the carriers from passing all of their higher fuel costs onto passengers.

“Passenger demand remains weak, fuel prices keep rising and there is no sign of a pick-up in cargo,” said Jim Wong, an analyst at Nomura Holdings Inc.

Singapore Air slumped to a loss of S$38.2 million ($31 million) in the quarter ended March 31. It had been expected to make a profit of S$119 million, based on the average of six analyst estimates compiled by Bloomberg.

Cathay pared its forecast of passenger-capacity growth to 3.2 percent this year from 7 percent. It also said it will stop hiring ground staff, offer cabin crew unpaid leave and pare cargo expansion to lower costs.

The airline has no plans to defer any on-order aircraft or to cut any routes, it said. Cathay is due to receive 15 new planes this year, including six already in service.

“It is a situation facing the aviation industry as a whole,” Cathay Chief Executive Officer John Slosar said in Hong Kong yesterday. “Fuel prices have increased and remained consistently high, cargo business remains generally weak, and passenger yields are soft.”
Slower Growth

Singapore Air’s main unit plans to increase capacity about 3 percent in the year that started April 1, down from a 5 percent expansion in the previous fiscal year. The carrier also said fuel prices may remain at high levels, which will affect its operating performance.

“Promotional activities necessitated by intense competition amongst airlines are expected to place downward pressure on passenger yields,” Singapore Air said in its statement. “Especially in Europe and the United States where demand continues to be impacted by the anemic economic outlook.”

At Singapore Air’s mainline unit, yields fell 3.3 percent in the quarter ended March. The unit filled 77.6 percent of seats, a 2.1 percentage point increase from a year earlier. The carrier also made a loss from retiring the last of its Boeing Co. (BA) 747-400 planes.
Air China

The airline industry’s profit will drop 62 percent this year as fuel costs rise, The International Air Transport Association forecast on March 20. Air China Ltd. (601111), the world’s largest carrier by market value, and China Southern Airlines Co. both posted lower profits for the three months ended March.

“We expect revenue pressure to dominate airlines’ woes in 2012,” Rigan Wong, a Hong Kong-based analyst at Citigroup Inc., wrote in a note to clients yesterday.

Deutsche Lufthansa AG this month announced plans to scrap 3,500 administrative positions as part of a 1.5 billion-euro ($1.9 billion) cost-reduction program after it posted a wider first-quarter operating loss.

Air France-KLM Group, which also reported a wider first- quarter loss, is in talks with unions as it seeks to push through a 2 billion-euro cost-cutting plan. In the U.S., American Airlines is trying to cut labor costs by $1.25 billion a year as it restructures in bankruptcy.

Jet fuel averaged 9 percent higher in Singapore trading than a year earlier in the three months ended March, according to data compiled by Bloomberg. Fuel accounted for 41 percent of Singapore Air’s costs in the year ended in March, compared with an average of 27 percent since 2004.


All Aviation NEWS
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Maani Sharma [ MBA Aviation ]
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