SINGAPORE: Hefty falls in earnings for aviation giants Singapore Airlines and Emirates are the clearest signs yet of fresh turbulence just three years after the 2008 financial crisis wreaked havoc, analysts said.
The two companies, regarded as among the industry's most well-managed carriers, cited escalating fuel expenses and growing unease over the global economy as the main drag on profits.
Both airlines rely heavily on intercontinental passenger and cargo traffic to drive earnings and the decline in profits announced last Thursday reflects the severity of the situation facing the sector, analysts said.
"The global airline sector is definitely under pressure right now from both fuel prices and economic volatility," said Jonathan Galaviz, managing director of Galaviz and Co business consultancy.
"There is no question that the global economic volatility over the last quarter has created heartburn for the global airline industry," he said.
Singapore Airlines (SIA) announced on Thursday that net profit in the six months ended September dived 62 per cent on-year to S$239 million (RM587.94 million), and cautioned earnings remained under pressure from high fuel prices and anaemic global growth.
"The prevailing economic uncertainty and weak consumer confidence are impacting demand for air transportation. Advance passenger bookings are showing signs of weakness, particularly in Europe and the US," SIA said in a statement.
"Forward prices for jet fuel remain high and volatile."
SIA pointed out that yields for air freight, one of several indicators on the state of global commerce, were also expected to be under pressure.
On the same day Dubai's Emirates, one of the world's fastest-growing airlines, reported half-year net profit tanked 76 per cent on 2010 to 827 million dirhams or US$225 million (RM702 million) with higher fuel costs a major culprit.
The state-owned carrier said it had to fork out US$1 billion (RM3.12 billion) more for jet fuel compared with the corresponding period in the previous financial year.
Shukor Yusof, an aviation analyst with Standard & Poor's Equities Research in Singapore, said the outlook for the airline sector appeared cloudy with the US economy stuck with weak growth and Europe struggling to manage the fallout from Greece's debt woes.
"We are looking at a severe erosion in not just premium (business and first class) seats but at the back of the aircraft which is the economy seats," he said.
"The situation is quite fluid with what is happening in Greece. If Greece disintegrates into some-thing more serious than what we are seeing, then the possibilities are endless in terms of the erosion of airline profitability."
The International Air Transport Association (IATA), which represents some 230 carriers that account for more than 90 per cent of scheduled global air traffic, said its members were being hit by a double whammy of high fuel prices and softer global economic conditions.
Jet fuel prices were at US$128 (RM399.36) a barrel in late October, 35 per cent higher than last year, it pointed out.
"The financial performance of the airline industry is closely linked to the health of world economies. If economic growth is strong airlines can cope with high fuel prices," it said.
While global air passenger traffic rose 5.6 per cent in September from a year ago, that may partly reflect travel booked earlier in the year when there was more economic optimism, the IATA said.
Air freight contracted 2.7 per cent year-on-year in September, its fifth straight month of decline in line with weakening business and consumer confidence, it added.
The last time global airlines ran into turbulence was in the aftermath of the global economic slump that started in late 2008. Global carriers lost US$4.6 billion (RM14.35 billion) in 2009, according to IATA.
While it is too soon to say whether the new problems will be as deep or long-lasting, the signs are that there is a bumpy ride ahead. - AFP