Singapore Airlines Reports Profit Drop Amid Competitive Pressures

Singapore Airlines has reported a significant profit decline, with a staggering 82% drop in second-quarter earnings, primarily driven by losses from its associate Air India. The net profit for the first half of the fiscal year fell to 239 million Singapore dollars, which represents a 67.8% decrease from the previous year.

This downturn was exacerbated by competitive pressures as well as volatile market conditions. Shares of Singapore Airlines dropped 3% following the earnings report, with analysts warning that the ongoing losses at Air India could further impact the group's profitability in the near future.

According to CNBC, the airline's revenue for the quarter was 4.89 billion Singapore dollars, slightly below the expected 4.94 billion, while the actual net profit of 52 million Singapore dollars was far less than the anticipated 181.47 million.

A significant contributor to the profit drop was a 295 million Singapore dollar hit from associated companies, including Air India. Singapore Airlines holds a 25.1% stake in Air India, having begun equity accounting for the airline after its merger with Vistara, which is co-owned by Tata Sons.

Despite these challenges, Singapore Airlines has announced plans to pay a special dividend of 10 Singapore cents per share over the next three financial years and an interim dividend of 5 Singapore cents for the half-year ended September 30.

Analysts from DBS Bank indicated that meaningful profit recovery for Air India may take time due to its extensive restructuring efforts, which are expected to weigh on Singapore Airlines' earnings until at least fiscal year 2026 to 2027.

Meanwhile, Air India is reportedly seeking at least 100 billion rupees, equivalent to about 1.1 billion US dollars, in financial support from Singapore Airlines and Tata Sons. This funding is intended for system upgrades and enhancing in-house engineering and maintenance capabilities.

The ongoing losses at Air India have already affected Singapore Airlines' results in previous quarters, illustrating the impact of Air India's operational challenges, including a recent crash that resulted in significant casualties.

Despite these setbacks, Singapore Airlines noted that passenger demand remains robust, and fuel costs have declined. However, the airline is facing challenges with yield pressures and increasing competition in key markets, which continue to squeeze profitability.

As the airline industry navigates its post-pandemic recovery, Singapore Airlines is focused on maintaining investor confidence with its capital return plan and optimistic outlook for travel demand as the year-end approaches.

This multifaceted situation underscores the complexities and ongoing hurdles that airlines face in the current environment, particularly with associated entities like Air India impacting overall performance.