Financial analysts have begun to revise down their year-end profit forecasts for Singapore Airlines (SIA), in the face of weak first-half results which showed the impact of rising fuel prices, declining yields and the strength of the local Singapore dollar.

The carrier's operating profit for the first six months to the end of September fell by S$60 million ($42 million) from 1995 first-half figures to S$468 million. While SIA has managed to contain its other costs, the carrier was "buffeted" by a 22% increase in fuel prices and the strength of the Singapore dollar against the falling yen, says chief executive Cheong Choong Kong. The yen accounts for some 17% of SIA's revenue.

Passenger-fare discounting and excess cargo capacity also contributed towards a 6.7% tumble in yields, which offset healthy passenger traffic growth of above 11%. "Traffic growth is strong, but yields are suffering from strong competition, particularly from Malaysian Airlines," says Kay Hian airline analyst Nora Cheng.

SIA's disappointing operating result was partially offset by a S$122.7 million sale of four Boeing 747-200s, one 737-300 freighter and surplus spares, leaving the group with a 7% increase in first-half net profits to S$561 million.

The group's overall performance was also boosted by the improved performance of its subsidiaries, such as SIA Engineering. Wholly owned regional carrier SilkAir also managed a slight improvement, cutting its interim losses to around S$3 million. SIA remains hopeful that with a better second half, SilkAir will still break even by the end of the year.

With the price of aviation fuel now at $30 a barrel, SIA is expected to face continued pressure.

Source: Flight International