Singapore Airlines' aggressive fleet growth feared to lead to overcapacity

Profits are likely to tumble.

According to Maybank Kim Eng, surging demand for air travel in recent years propelled Singapore-based carriers to expand their aircraft fleet aggressively.

Despite lingering headwinds from the global financial crisis in 2008-2009, total seat capacity at Singapore-based carriers has increased by 34% since end-2007.

Here's more from Maybank Kim Eng:

Short-haul carriers SilkAir, Tigerair Singapore and Jetstar Asia more than doubled their capacity over 2007-2013.

However, capacity growth for Singapore Airlines (SIA) was only 7%, reflecting weak demand for long-haul travel.

The unrelenting expansion led to overcapacity in the Singapore aviation market. Take, for example, SilkAir and Tigerair Singapore.

Capacity expansion at both carriers outpaced traffic growth over the past year. As a result, yields contracted and profits tumbled.

As for Jetstar Asia, while detailed data is not available, parent company Qantas had singled out the Singapore-based carrier as the reason for recent losses suffered by the Jetstar group (underlying EBIT of (AUD16m) in 1HFY6/14 vs AUD128m in 1HFY6/13).

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