Singapore Airlines Posts Surprise Profit Gain Amid Air India Disruption

Singapore Airlines Shares Surge Amid Earnings Beat, Warning Over Iran War Risks

Singapore Airlines Ltd. shares rose almost 2.6% on Friday, marking the largest intraday gain in five weeks, following the carrier's annual earnings report that exceeded market expectations despite concerns over the impact of the Iran war.

The airline's net income plummeted 57% year-over-year to S$1.18 billion ($927 million) for the period ending March 31. However, this decline was less severe than anticipated, with analysts estimating a net income of S$1.08 billion. The positive surprise was largely due to the airline's ability to withstand a S$945.2 million impairment tied to its Air India stake, as revealed by auditor KPMG.

Despite the significant impairment, the airline's operations remained resilient, with operating profit growing to S$2.37 billion, surpassing consensus estimates and highlighting strong demand in the industry. Revenue also jumped to S$20.5 billion, another beat.

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Singapore Airlines benefited from higher passenger volumes, driven by travelers shifting routes to avoid Middle Eastern conflict zones. However, the airline warned that the broader fallout from the Iran war could soon impact these gains. While the immediate effect of the war is the surge in jet-fuel prices, the carrier cautioned that it is not the only cost.

The Iran war's broader implications for supply chains and macroeconomic conditions, as well as the potential disruption to jet fuel supply, could affect demand patterns and airline operations. The carrier will face tougher operational challenges in the fiscal first quarter, following a strong year-end performance.

The airline is tackling internal challenges, including the turnaround of Air India, which has resulted in significant losses. The Indian carrier is controlled by Tata Group, with Singapore Air as a minority shareholder, and is burning through cash as it pursues a multi-billion dollar turnaround.

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Singapore Airlines' exposure to Air India may deepen, as both shareholders are in talks to inject more capital into the carrier. The airline is also searching for a new CEO after Campbell Wilson's departure. To keep the turnaround on track, Singapore Airlines has been placing more executives into key operational roles in the Indian carrier.

The airline has diversified its reach through joint venture pacts with several airlines, including Malaysia Airlines, All Nippon Airways, Garuda Indonesia, Lufthansa Group, and Air New Zealand. It is also seeking a similar deal with Vietnam Airlines.

While the airline posted a sharp fall in net income, it trimmed its proposed total dividend for the year to 37 Singapore cents per share, including a final dividend of 22 cents in local currency.

The airline is grappling with soaring jet fuel prices, which have affected airlines globally. The latest results reflect only one month of war-related impact, though the March demand remained strong, with long-haul routes to Europe and the Americas averaging 94% full, while others averaged 88%.

Singapore Airlines said the full effect of a more than doubling of jet fuel prices will be felt in the new fiscal year. The airline's single-largest expense, kerosene, has not been fully offset by airfare hikes.

The airline continues to add capacity to Europe, including the UK and southern Europe, and is contributing strongly to group performance through its low-cost unit Scoot, which flies around a third of total passengers and is expanding rapidly with new, smaller aircraft.