SINGAPORE AIRLINES (SIA) again emerged as the world's most profitable carrier as it revealed improved results for its latest financial year. The group warns, however, that it faces tougher times ahead from aggressive international competition and the strength of the Singapore dollar.

The group has revealed that net profits grew by nearly 15%, to reach S$918 million ($648 million) in the year to the end of March. With only a handful of major airline groups still to report for their latest financial year, SIA is certain to claim the industry's highest profits.

SIA managing director Cheong Choong Kong says that the improved performance was due to a general recovery in the world economy, and "...would have been better, but for a softening of the market towards the end of the financial year".

Passenger traffic grew by 7.3% over the year, despite markedly weaker loads in February and March. This was partially because of SIA adding new flights to Japan's Kansai International Airport, shortly before the Kobe earthquake in January. Cargo traffic grew even faster, at 14%.

Cheong warns that excess capacity and "aggressive marketing by the competition" will continue to tax the airline's ability to maintain its performance.

Financial analysts warn that increased competition and lower air fares, particularly from neighbouring rivals Malaysia Airlines and Thai Airways International, could have a long-term impact on SIA's performance

"Traffic growth is still very soft and to bring that back, fares may have to be adjusted down. That is the key issue," says Wang Wah Lee, airline analyst at DBS Securities.

The strength of the Singapore dollar is also beginning to have an impact on airline yields, which edged down by 1.8% on passenger services and dropped 2.3% for cargo.

SIA has acted to minimise the effect on its local overheads by raising staff efficiency and transferring operations such as computing and maintenance to offshore locations. Action on costs showed through in an 8% rise in staff productivity and a 7.6% fall in unit costs across the system.

SIA's subsidiary companies suffered a disappointing year, posting a 60% fall in operating profits. Profits suffered at SIA Engineering, the carrier's aircraft overhaul and maintenance company, in the face of world over-capacity and extremely low work rates, while the group's regional airline subsidiary SilkAir notched up losses.

Analysts warn that Silkair's market will get tougher as it faces growing competition from rival low-cost carriers.

Source: Flight International