SINGAPORE (Nikkei Markets) -- Singapore Airlines warned of challenging conditions ahead after the steep rise in oil prices and stiff competition in major markets resulted in quarterly earnings that were just a fifth of year-ago levels.
While bookings are expected to be stronger, headwinds continue to persist in the form of cost pressures, Singapore's flag carrier said in a statement.
The airline earned 56.4 million Singapore dollars ($40.8 million) in the three months ended September, down 81% from the same period a year ago. The plunge in second-quarter earnings was made worse by the group's recognition of S$97 million in losses at its associated companies, due to accounting changes that affected Virgin Australia.
Singapore Airlines also cut its interim dividend to 8 Singapore cents from 10 Singapore cents in the year-ago period.
Excluding non-recurring charges, the carrier's net profit was slightly better than the consensus estimate of S$146 million of analysts polled by Refinitiv.
Revenue for the quarter rose 5.6% on-year to S$4.06 billion, reflecting an increase in capacity and the group's success in filling a higher proportion of its seats.
Like Hong Kong-based rival Cathay Pacific Airways, Singapore Airlines has seen its fortunes decline in recent years due to competition from budget airlines on regional routes. In the three months to September, the group's regional carriers SilkAir and Scoot both posted operating losses.
Airlines from countries such as China and Indonesia have also increased direct flights to Europe and North America, reducing the need for transit through other major Asian gateways.
Regional stockbroker CGS CIMB said in a note on Monday that Singapore Airlines and other Asian carriers would find it difficult to pass on higher fuel costs to passengers due to strong competition from expanding low-cost carriers, Chinese carriers and Middle East carriers.
Kevin Gin, a fund manager at Alpha Capital, said Chinese carriers posed the biggest threat to Singapore Airlines over the medium term as they enjoyed huge economies of scale thanks to their domestic market.
"SIA is a good airline but it is no longer great...It was caught sitting on its laurels as competitors caught up and did better," he added.
In a bid to cater to premium passengers, Singapore Airlines recently launched non-stop flights from its home base to New York and Los Angeles.
The carrier said the additions would strengthen its competitiveness as well as the Singapore hub.