By: Martin Abbugao
Agence France-Presse
May 13, 2012
Singapore – Premium airlines in Asia are rethinking their strategies and slashing costs as high fuel prices, global economic uncertainty and pressure from Middle East and budget carriers squeeze profits.
Singapore Airlines (SIA) reported Wednesday that its net profit for the financial year ended in March tumbled 69 percent to Sg$336 million ($268 million), weighed down by a rare loss in the fourth quarter.
It was only SIA’s third quarterly loss in its 40-year history of uninterrupted full-year profit. The first took place during the SARS health scare in 2003 and the second during the global financial crisis in 2009.
SIA’s Asian rival Cathay Pacific of Hong Kong has warned shareholders that its first-half results, due out in August, are “expected to be disappointing” on the heels of a 61-percent net profit fall in 2011.
Both carriers are looking for more opportunities in Asia, the world’s fast-growing aviation market, as long-haul operations take a hit from the European debt crisis and the patchy US recovery.
Australian flag carrier Qantas is also attempting to refocus on Asia as part of its strategy to revitalize its loss-making international business.
“This is not just a Cathay Pacific problem,” chief executive John Slosar said in a statement to the Hong Kong stock exchange.
“It is clearly an industry-wide issue, and continued high fuel prices in particular are hitting airlines hard across the globe,” he said, calling for “concerted action” to address the volatile environment.
SIA’s performance is regarded as an indicator of industry trends and its reliance on business and first-class passengers to generate high margins is now being called into question.
Premium carriers such as SIA and Cathay are among the most affected by the economic headwinds because of their heavy reliance on top-paying passengers who can account for more than 50 percent of revenues, analysts said.
Some analysts say SIA has not been not been quick enough to seize opportunities at the lower end of the market.
“While SIA’s current slump is more a result of tough economic conditions and external factors, they are also now paying the price for standing still,” the Sydney-based Centre for Aviation consultancy said in a report.
Air travellers are more price-conscious and have a wider range of choices from budget carriers to premium airlines, Shukor Yusof, an aviation analyst in Singapore with Standard & Poor’s Equities Research, told AFP.
Last year, one in four of the 46.5 million passengers who passed through Singapore’s Changi Airport travelled on a low-cost airline, compared to one in five in 2010, the airport operator said.
SIA is also being challenged by Middle Eastern carriers such as Etihad, Qatar Airways and Emirates, which have expanded their fleets and improved cabin
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