Singapore profits are down 81% this quarter thanks to higher fuel prices, lower ticket prices…and Virgin Australia.
Singapore Airlines was quick to highlight the first two reasons–fuel prices and fare pressure–as the reason for its dismal drop in profits:
Headwinds continue to persist in the form of cost pressures arising from significantly elevated fuel prices compared to a year ago, as well as keen competition in key operating markets.
translation: our competition is out-performing us.
But the 81% drop in second quarter profits (S$56 million compared to S$293 million last year) can also be attributed to Virgin Australia. Virgin has lost money for six years in a row. While it always claims that profit is just around the corner, it has thus far failed to deliver on that promise.
Singapore owns a 20% stake in Virgin Australia, which has suffered an even worse financial year. Part of Singapore’s steep drop in profits is the writing down of S$116 million from the Virgin investment. In addition to Singapore Airlines, Virgin Australia is owned by Etihad, HNA Group (owns Hainan Airlines), Nanshan Airlines (owns Qingdao Airlines), and Richard Branson’s Virgin Group. That’s a lot of chiefs at the table…
Take that out Virgin and Singapore still lost 41%. At S$4.06 billion, revenue actually rose 5.4% compared to last year based on increased capacity. Yields (essentially ticket prices) dropped 2.2%. Singapore also announced it has hedged 58% of its fuel requirements for the rest of the year…time will tell if that is a wise move.
CONCLUSION
Singapore is 2/3 through a three-year plan intended to make the lauded carrier more sustainable. Thus far, though, the carrier is still struggling to adapt to the changing environment in Southeast Asia.
“Singapore owns a 20% stake in Virgin Atlantic” or Virgin Australia? This article makes sense if you meant to write Australia instead of Atlantic. Proofreading could have prevented that error….
I’ve recently completed four sectors on Singapore Airlines in business class and all I can say is that they were a total disappointment. The cuts in service standards along with aircraft which had in the main seen better days together with the revamped seat on the newest A380s left me thinking it will be a long time before I pay their top price fares again. The new A380 seat, much more densly packed than its predecessor should have been killed off at birth, it’s the hardest seat I’ve ever sat on and I was definitely numb in the rear after just a couple of hours of a twelve hour flight, I’ve sat on more comfortable park benches.
For me SQ have lost the plot and I won’t be using them any time soon.
Another airline believing that their glory days would last forever and that there was no need to innovate, adapt or respond to changing markets. They didn’t learn from their previous flirtation with the Australian domestic market ( via the disastrous investment in Ansett , in cahoots with the staggeringly inept Air New Zealand).
In respect of Virgin, they had the option of “going all in” with a full takeover ( and certainly had the cash to do it) but evidently lacked the guts. Now they’re stuck with a worthless minority stake in an airline that’s going nowhere fast, in economic terms.