Singapore profits are down 81% this quarter thanks to higher fuel prices, lower ticket prices…and Virgin Australia.
Singapore Airlines was quick to highlight the first two reasons–fuel prices and fare pressure–as the reason for its dismal drop in profits:
Headwinds continue to persist in the form of cost pressures arising from significantly elevated fuel prices compared to a year ago, as well as keen competition in key operating markets.
translation: our competition is out-performing us.
But the 81% drop in second quarter profits (S$56 million compared to S$293 million last year) can also be attributed to Virgin Australia. Virgin has lost money for six years in a row. While it always claims that profit is just around the corner, it has thus far failed to deliver on that promise.
Singapore owns a 20% stake in Virgin Australia, which has suffered an even worse financial year. Part of Singapore’s steep drop in profits is the writing down of S$116 million from the Virgin investment. In addition to Singapore Airlines, Virgin Australia is owned by Etihad, HNA Group (owns Hainan Airlines), Nanshan Airlines (owns Qingdao Airlines), and Richard Branson’s Virgin Group. That’s a lot of chiefs at the table…
Take that out Virgin and Singapore still lost 41%. At S$4.06 billion, revenue actually rose 5.4% compared to last year based on increased capacity. Yields (essentially ticket prices) dropped 2.2%. Singapore also announced it has hedged 58% of its fuel requirements for the rest of the year…time will tell if that is a wise move.
Singapore is 2/3 through a three-year plan intended to make the lauded carrier more sustainable. Thus far, though, the carrier is still struggling to adapt to the changing environment in Southeast Asia.