SEVERE CROSSWINDS: High fuel prices, economic uncertainty and pressure from Middle East, budget carriers squeeze profits
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 on Wednesday that its net profit for the financial year ended in March tumbled 69 per cent to S$336 million (RM824 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-per cent 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 recovery in the United States.
Australian flag carrier Qantas is also attempting to refocus on Asia as part of its strategy to revitalise its loss-making international business.
"This is not just a Cathay Pacific problem," its 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 were among the most affected by the economic headwinds because of their heavy reliance on top-paying passengers who can account for more than 50 per cent of revenues, analysts said.
Some analysts said SIA had 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, said Shukor Yusof, an aviation analyst in Singapore with Standard & Poor's Equities Research.
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 services to compete with the famous "Singapore Girl" flight attendants.
"They have closed the gap," said Shukor. "They now offer services that are at par or better than SIA and at lower ticket prices," he said, noting that SIA fares were around 20 percent higher.
Cathay said its cost-cutting measures included reducing flight frequencies on some routes to Europe and the US while expanding its profitable Asian network through sister firm Dragonair.
It will deploy more fuel-efficient aircraft, speed up the retirement of older Boeing 747-400 planes, freeze hiring of ground staff and offer voluntary unpaid leave for cabin crew from next month.
SIA said in March it had asked its pilots to volunteer for unpaid leave for up to two years during which they can work for other airlines.
It has retired the Boeing 747-400 and is pushing through with orders for new more fuel-efficient Airbus and Boeing planes.
Global airline industry group IATA in March cut back its 2012 profit forecast for the industry to US$3.0 billion (RM9.2 billion) from US$3.5 billion due to persistently high fuel prices, with Brent crude staying above US$100 a barrel. AFP