Singapore Air slashes freighter capacity by 20pct

Singapore Airlines Ltd, the world’s second-biggest carrier by market value, cut freighter capacity by 20 per cent because of slumping demand and higher fuel prices.

The cuts took effect recently and will continue into the next operating season, which starts in late March, the carrier said in a statement today. The reductions mainly affect long- haul routes, it said without elaboration.

The airline, which has a fleet of 13 Boeing Co 747-400 freighters, is paring services as the European debt crisis saps demand for electronics, auto parts and other goods made in China. The carrier filled 58.5 per cent of cargo space last month, the lowest amount since April 2009, according to data compiled by Bloomberg.

“It’s good to see excess capacity being removed from the sector,” said Robert Bruce, head of Singapore research at CLSA Ltd. Still, it “can be turned on again very quickly” as the carrier isn’t parking or retiring planes, he said.

The airline, which generates about 20 per cent of sales from freight, had an S$40 million ($32m) operating loss in its cargo unit in the quarter ended December. The unit filled 64.7 per cent of capacity in the quarter, compared with the 69.2 per cent needed to cover its costs.

The break-even target was 8 percentage points higher than a year earlier because of lower rates and higher fuel costs, the airline said in a February 2 statement. The price of jet fuel has jumped 9.1 per cent in the past year in Singapore trading.

“The depressed demand that we are seeing across all markets gives us little reason to be optimistic about the near- term outlook,” SIA Cargo President Tan Kai Ping said in today’s announcement. The carrier doesn’t expect any improvement in the first half, he said.

Singapore Air fell 0.6 per cent to S$10.94 at close in Singapore before the announcement. It has slumped 22 per cent in the past year. Cathay Pacific Airways Ltd has fallen 15 per cent in Hong Kong.

Cathay, the largest international air-cargo carrier, has been “cutting capacity aggressively” on North America and European routes, it said this month. The carrier expects the cargo slump to extend into the second half, Chief Executive Officer John Slosar said February 13.

China’s manufacturing may shrink for a fourth month in February, according to index from HSBC Holdings Plc and Markit Economics today. A measure of export orders also fell to an eight-month low, the report said.

The “challenging conditions” in the air-cargo market will probably continue in the near term because of overcapacity, said Corrine Png, a analyst at JPMorgan Chase & Co. Air-cargo demand may revive later in the year helped by the expected introduction on the Apple Inc’s iPad 3 and restocking of other technology products, she said.

Singapore Air’s cargo tonnage fell 6.5 per cent last month to 87.4 million tonnes. Comparisons with a year earlier are distorted by the earlier lunar New Year holidays in China.

Global international air-cargo traffic, as measured by volumes multiplied by distance, fell 0.8 per cent last year, compared with a 4.5 per cent increase in capacity, according to the International Air Transport Association. Load factors fell to 45.9 per cent.