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SIA may not be able to raise fuel surcharges, warn experts

Singapore Airlines may impose another round if spikes in oil prices continue despite having already raised fuel surcharges three times this year, a spokesperson said. Analysts however warn that raising it further will eventually cause SIA to lose larger market share to the budget carriers.

“We keep the application of fuel surcharges under constant review. SIA imposes a fuel surcharge to mitigate the high cost of fuel. The surcharge, however, only serves to cover part of the increasing cost,” Nicholas Ionides, Vice President for Public Affairs of SIA said in an email reply to Singapore Business Review.

SIA first raised fuel surcharge this year on January 21 and was followed on March 9. The latest was on April 15 when oil prices hovered around more than $138 per barrel, which is the highest level in two years.

Melissa Yeap, analyst at DMG & Partners Research however expressed doubt on whether SIA can further raise fuel surcharges.

“We doubt they would be able to further raise it. We are already seeing load factors and advance bookings levelling off. I believe management is aware that they are losing market share to the budget carriers hence the recent announcement to start their own medium/long haul budget carrier,” she said.

Paul Yong, Vice President of Equity Research at DBS Vickers Securities also shared the same view adding that “raising underlying ticket prices has to be carefully managed in the face of competition.”

Mr. Yong projects that SIA's core earnings will decline by 6% for the fiscal year ending March 2012 from the previous $1.02 billion largely on account of higher jet fuel costs.

SIA however remains optimistic, with Mr. Ionides saying that “While FY09/10 was a challenging one for the aviation industry, we saw a continued recovery through 2010 and sales figure has been encouraging so far for 2011.”

“Having said that, we remain cautious as in addition to the volatility of fuel prices, economic conditions in Europe and persistent high unemployment rates in the US also remain a concern.” He added.

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