Singapore Airlines (SIA) says that the recent spate of Asia-wide currency and stock-market upheavals could affect air traffic in the region. The warning comes despite a healthy jump in the group's profits for the first six months of the financial year.

SIA's second-half forecast notes that traffic "-may be dampened" by the region's recent financial instability and "negative publicity" over smoke from forest fires blanketing much of South-East Asia.

The airline warns that passenger load factors may slip further, having edged down to 74%over the half year to the end of September.

Currency and stock markets in Hong Kong, Indonesia, Malaysia, the Philippines and, to a lesser extent, Singapore, have all suffered in recent months. While falls in the value of the rupiah, ringit and peso of more than 30% against the US dollar have depressed traffic within the region, suffocating smoke has also deterred many inbound travellers from Europe and the USA.

According to Nora Cheng, senior analyst at investment house James Capel, "currency volatility and the cancellation of holidays should make for a weaker second half". With earnings close to peaking and the difficulty of sustaining traffic as growth flattens and competition intensifies, "we're not overly positive for the next two to three years", she adds.

SIA nonetheless turned in a better-than-expected result for the first half, with a net profit of S$616 million ($400 million), up by 9.9%. Group sales climbed by nearly 11%, to S$3.9 billion.

Weakened local currencies helped SIA to show a 5% rise in passenger yields, while cargo also edged up, by 0.3%. At the same time, system-wide unit costs slipped by around 1.2%

Although passenger traffic growth has been relatively muted at 3.7%, cargo markets have boomed, with a rise of close to 18%, staying ahead of an aggressive capacity expansion.

SIA chief executive Dr Cheong Choong Kong says that the group remains "bullish for the rest of the financial year", but will monitor closely the "unfolding economic dramas" in the region.

"This is a very solid and impressive result," says Peter Negline, senior research analyst at Salomon Brothers. He adds that SIA's lack of debt has helped shield it from the rise of the dollar, making the group one of the few attractive airline stocks in the region.

The group's subsidiaries fared less well, however, with SilkAir sliding back into the red after breaking even in 1996.

Source: Flight International