Shares in Singapore Airlines are eyeing their biggest one-day drop since the financial crisis after the carrier revealed its first quarterly loss in more than seven years and announced it would reintegrate its cargo division into the broader group.
Hampered by “intense competition”, rising cost pressures and the reinstatement of a fine related to anticompetitive behaviour in its cargo division, Singapore Airlines (SIA) posted a surprise loss in the fourth quarter and said it would conduct a strategic review of its portfolio.
Group revenues in the three months to March 31 were basically flat from a year earlier at S$3.72bn ($2.7bn), it revealed after close of market on Thursday. Rising cost pressures cut into operating profit, which fell 82 per cent to S$27.6m from a year earlier.
But the biggest hit to net profit was a S$132m provision relating to a European anticompetition ruling against its cargo unit.
The bottom line result was a loss of S$138.3m – its first quarterly loss since the September quarter of 2009 – well below analysts’ expectations for a profit of S$54.3m and compared to S$224.7m a year ago.
For the full year, revenue fell 2 per cent to S$14.87bn and net profit sank 55.2 per cent to S$360.4m.
SIA made the S$132m provision after revealing in March the European Commission decided to reinstate a decision to fine several airlines a combined €776m for their part in air cargo price-fixing cartel from December 1999 to February 2006. The company also accounted for an expected refund of a S$117m fine from the previous year, but this was not forthcoming.
SIA shares were down 6.4 per cent during lunchtime trade in Singapore at their lowest level since the end of March. Shares were facing their biggest one-day drop since November 6, 2008 when they sank 7.2 per cent, and had been off as much as 6.7 per cent on Friday.
Of the outlook, the carrier said “intense competition arising from excess capacity in major markets, alongside geopolitical and economic uncertainty, continue to exert pressure on yields”, while fuel prices were expected to remain “volatile in the near term”.
The airline said today that SIA Cargo, a wholly-owned subsidiary, would be reintegrated as a division of the overall group, but the move was not expected to have a material impact on the company’s performance in the current financial year. SIA Cargo became a separate company within SIA Group in 2001.
Goh Choon Phong, SIA’s chief executive, said:
Re-integrating SIA Cargo as a Division within Singapore Airlines makes sense from a business standpoint. It will improve efficiency and offer greater flexibility for staff deployment by maximising synergies with the larger SIA business.