Dow Jones Business News
Singapore Air FY Net Likely +74% On Writebacks -Analysts
Monday May 19, 1:45 am ET
SINGAPORE (Dow Jones)--Singapore Airlines Ltd. is expected to report a 74% rise in net profit for the year ended March 31, thanks to tax writebacks and as air traffic rebounded from the shock of the Sept. 11, 2001, terrorist attacks on the U.S.
The airline - among the most profitable in the world - is due to report earnings after 0905 GMT Wednesday. While the headline figure may look better, analysts say they are keen to hear how the SARS outbreak will affect overall profitability in the current financial year.
The airline has cut flights by one-third, fired staff, and postponed fleet replacement and expansion as the SARS outbreak in March led to a steep fall in traffic.
Kim Eng Ong Asia Research's Seah Hiang Hong says, "What happened last year isn't important. People are concerned about (lower) traffic in current conditions."
SIA is expected to report a net profit of S$1.1 billion (US$1=S$1.7222) based on consensus forecast by six analysts polled by Dow Jones Newswires, up from S$ 632 million in the previous corresponding period. Individual forecasts ranged from S$977 million to S$1.2 billion.
In the year ended March 31, SIA's net profit will also be somewhat misleading due to the impact of one-off tax writebacks as a result of a change in the corporate tax rate from 24.5% to 22%.
Stripping away the expected tax input to SIA's earnings, recurring net profit is expected to range from S$880 million to S$930 million.
"Cargo and passenger traffic was strong as air travel rebounded from the aftershock of Sept. 11 (2001)," Ann Lim, analyst at Daiwa Institute of Research says, adding these factors will be earnings drivers apart from the tax rate change.
For the year to March, SIA's passenger traffic rose 6% while cargo traffic rose 15%, according to analysts' calculations.
For the previous period when its second half felt the full impact of the Sept. 11 terrorist attacks on the U.S., passenger and cargo traffic had fallen 2.8 and 1.9 percentage points respectively.
The airline worked aggressively to control costs by reducing total expenditures by 1.6% to S$8.46 billion, cutting flights on unprofitable routes, freezing salaries and deferring fleet expansion.
Those measures have started to sound familiar as the airline battles the impact of severe acute respiratory syndrome on demand for air travel.
Last week, the airline said it moved fewer passengers and cargo in April than a year ago - its fourth consecutive month of decline.
Its overall load factor - a measure of how efficiently an airline uses seats and cargo space - fell a morale-sapping 13.6 percentage points to 58.7%. It was its lowest level in at least 13 years.
SIA simultaneously announced more flight cuts as it battled weak demand for air travel, bringing its total capacity reductions to 31.5% with 358 weekly flights suspended since the outbreak of SARS in late March.
Measures announced prior to last week's flight cuts - such as asking cabin crew to take one week of unpaid leave every two months to prevent the airline from having to cut full-time jobs for the first time in more than 20 years - will result in estimated savings of S$14 million for the current fiscal year, which ends March 2004.
The airline had also fired 206 non-payroll staff, frozen staff salaries and scaled back fleet replacements.
Analysts await further cost-cutting measures as SIA attempts to minimize the toll of SARS on its earnings for the current year.
-By Abdul Hadhi, Dow Jones Newswires;
