Singapore Airlines is fighting to prevent travellers from switching to Emirates, which is offering luxuries like on-board showers, while budget carriers are chipping away at economy class. The result: The lowest yield from passengers in six years.
Yields, or the revenue earned from a passenger for flying a kilometre, was 10.6 Singapore cents in the financial year ending in March, dropping from 11.2 cents a year earlier. That damped full-year net income to $804 million, or about a quarter of what Emirates racked up in the same period.
Shares of South-east Asia's biggest airline fell the most in almost five years as the carrier faces increasing challenges to retain front-end customers amid the expansion of Middle East airlines. Budget carriers are also putting pressure on short-haul routes.
To fight back, chief executive officer Goh Choon Phong, 52, has ordered more than US$10 billion (S$13.7 billion) of new aircraft and formed alliances from Australia to India as Asia is poised to become the world's biggest travel market in two decades.
"They're being squeezed on many different fronts," said Mr Shukor Yusof, founder of aviation consultant Endau Analytics in Malaysia. "The market dynamics have changed forever for Singapore Airlines."
The stock declined as much as 5.3 per cent yesterday, the biggest intraday drop since August 2011. That erased this year's gains and the stock has lost 1.4 per cent this year.
The Singapore carrier on Thursday reported fourth-quarter profit that lagged behind analyst estimates as losses from fuel-hedging countered gains from carrying more passengers during the Chinese New Year holiday season.
Net income jumped more than fivefold to $224.7 million in the quarter ending in March, the carrier said in a statement to the Singapore Exchange after trading hours on Thursday. Analysts estimated Singapore Airlines to report a profit of $249.2 million. Sales at $3.71 billion also missed estimates.
"Across the industry, yields are under pressure," Mr Goh said at a briefing yesterday. "We see some weakness going forward. Oil price is volatile and competition continues."
Singapore Airlines has had no choice but to discount "heavily", sacrificing yields to fill more seats amid the rising competition, said Maybank analyst Mohshin Aziz.
Singapore Airlines has been looking to build alliances abroad as part of a multi-hub strategy. It partnered with India's Tata Group to start Vistara in January last year and owns about 23 per cent of Virgin Australia Holdings. The company's Scoot unit also teamed up with Nok Air of Thailand to set up NokScoot.
Singapore Airlines started flying its two Airbus A350 aircraft to Amsterdam from May 9.
The carrier will receive the ultra-long-range version of the plane in 2018 for services to New York, which will become the world's longest non-stop flight.
Singapore Airlines - the only Asian carrier to fly the Concorde and the first in the world to fly the A380 superjumbo - needs new passengers to stem the slide in earnings.
Operating profit peaked eight years ago and sales reached a high in the financial year ending in March 2009 as the global financial crisis crimped premium travel. The carrier is counting on cabin comforts to draw higher-end passengers used to its fully flat beds, as well as more price-conscious customers.