Tuesday, May 13, 2008

Are the Record Oil Prices the Sole Reason for SIA’s Dip in Profits?

Singapore Airlines Ltd., the world's second-largest airline by market value, dropped to the lowest in two weeks on the city's stock exchange amid concerns that record oil prices will damp profit.

The carrier fell 1.7 percent to S$15.52 in Singapore trading, closing at its lowest since April 24.

Singapore Airlines, Cathay Pacific Airways and other Asian carriers face shrinking margins as an economic slowdown crimps demand and jet-fuel costs surge in line with rising oil prices. Crude oil climbed 1.4 percent to $123.53 a barrel in New York yesterday, the highest close since trading began in 1983.

“Jet-fuel costs may get the better of Singapore Airlines in the coming financial year,” Citigroup analyst Robert Kong said in a note. This is especially likely ‘if softer traffic growth and lower load factors later in the year weigh on passenger yields.’

The Singaporean carrier yesterday said that it will raise surcharges as much as $20 a flight next week in bid to offset surging fuel costs. Jet fuel accounted for almost 37 percent of its costs in the quarter ended Dec. 31.

Cathay Pacific, Hong Kong's biggest airline, yesterday said it may raise its ticket levies further. Cathay Pacific rose 0.1 percent to HK$16.24 in Hong Kong after falling as much as 1.4 percent earlier.

Air China Ltd., the world's biggest carrier by market value, dropped 2.2 percent to HK$5.72 in Hong Kong trading. China Southern Airlines Co., the country's biggest airline by sales, slipped 2 percent to HK$4.97 in the city.

Will Raising Surcharges Indeed Help Offset the Cost of Operations, or Will it Cause Air Travellers to Switch to other Airlines?