Singapore Airlines reported a massive hit to its operating profit for the first quarter of the fiscal year. The year-on-year decline in the profit was 13.8% at S$405 million. This drop in profitability comes at the same time as a 7.11% drop in the airline’s publicly-traded stock shares. The largest carrier in the connected US market, the carrier attributed some of that drop to adverse financial impact of Air India. On the downside, it noted that insurance must pay for nearly all expenses stemming from last week’s crash of Air India Flight 171.
Singapore Airlines’ net profit dwindled to S$186 million ($144 million) for its quarter ending June 30. In response, company officials explained that the net profit decline was due to a declining operating profit. They further pointed out that their loss of interest income resulted from having lower cash balances and from recent interest rate decreases. The airline was still losing money from its subsidiaries. This is a tremendous difference from the record profits it booked during the same quarter last year.
The airline’s woes are exacerbated by a steep average fare decrease of an unprecedented average of 8% to 15%. This significant reduction has caused up-tiers to drive an increase in cancellations primarily amongst corporate and premium leisure travelers. The airline’s outlook reflects concerns about Air India’s ongoing financial struggles, which were not factored into Singapore Airlines’ results for the same quarter in 2024.
“In addition to the lower operating profit, the reduction in net profit was largely attributable to a lower interest income on the back of lower cash balances and interest rate cuts, and the Group recording a share of losses of associated companies compared to a share of profits for the same quarter last year,” – SIA
Analysts point out that Air India’s financial issues are deeper than anticipated and may not resolve soon due to complicated restructuring efforts and reputational damage. Tabitha Foo, an industry expert, commented on Air India’s situation, stating, “Air India losses were significantly deeper than expected and are unlikely to ease in the near term as the airline navigates a complex restructuring alongside reputational damage.”
Average fares had decreased drastically after the recent Boeing aircraft disaster. In turn, cancellations spiked among business clients and high-end leisure travelers. This trend is concerning for the stability of future demand.
“Following the Boeing incident, average fares dropped 8% to 15% while cancellations rose, especially among corporate and premium leisure travelers.” – Tabitha Foo
Even with all of these hurdles, Singapore Airlines is hopeful about days to come. The carrier has noted robust consumer demand to fly as we get closer to the second quarter FY2025/26. This boom is largely attributed to the seasonal uptick of summer travel.
“The demand for air travel remains healthy in the second quarter of FY2025/26 across most route regions due to the traditional summer peak,” – SIA
One thing is clear, Singapore Airlines is a unique company in a difficult industry. Finally, they point to their strong balance sheet, leading digital capabilities, and loyal employee base as three main strengths.
“The SIA Group is well-positioned to maintain its industry-leading position, thanks to its robust foundations – a strong balance sheet, digital capabilities, and a talented and dedicated workforce,” – SIA
As noted by market analysts, Singapore Airlines’ share price is sorely in need of consolidation, in light of how far up it has climbed. Eric Ong, an analyst at one of the largest financial companies in the world, argues that their share price has become disconnected from its fundamentals. Consequently, he and his team have just downgraded Singapore Airlines to a “SELL” rating.
“We think the share price has run ahead of its fundamentals and downgrade SIA to SELL,” – Eric Ong