Singapore Air cuts cargo capacity by 20%

• SIA Cargo has operating loss in the past three quarters
• Reducing cargo capacity is a sensible move - analysts
• Cathay, Boeing says cargo market to recover later in 2012

SINGAPORE (Reuters: Singapore Airlines Ltd cut its cargo capacity by 20 percent as global economic slowdown led to persistent weakness in demand and high jet fuel prices piled pressure on its profitability.

The move came after rival Cathay Pacific, the world’s largest air cargo carrier, said last week it expected the cargo market to remain weak throughout the first half of this year before improving in the second half.

Weak demand also hit sea-borne cargo, a barometer for global trade. Singapore-based Neptune Orient Lines Ltd, the world’s sixth largest container shipping firm, reported last week a wider than expected fourth quarter net loss of $320 million.

“Cargo demand over the last year has been very weak. Airlines are still running their cargo schedules a little too high and load factors have been falling for some time now,” said Andrew Orchard, an analyst at RBS.

“Twenty percent is quite a hefty amount. SIA has seen their cargo (business) hold up better than some of their peers, like some Chinese airlines. So it’s a little surprising that they’ve decided to take such a drastic step.”

SIA Cargo, which operates 13 Boeing 747-400 freighters, said the capacity reductions were implemented recently and would continue into the northern summer operating season which starts late next month.

The carrier has reported operating losses in the past three quarters.

“With no improvement expected in the first half of this calendar year, and with stubbornly high fuel prices pushing up costs, we have taken appropriate action to reduce our freighter operations to better match capacity to demand,” SIA cargo president Tan Kai Ping said in a statement.

Singapore Airlines spokesman Nicholas Ionides said operational resources had been scaled back through natural attrition but there were no layoffs within the airline.

Despite the weak cargo market, Boeing Co said some customers were still ordering cargo planes as they hoped the market would recover when they take delivery.

“The cargo market is soft -- you know that it has been flat over the past 12 months. We think it will pick up towards the end of the year,” Jim Albaugh, president and chief executive officer of Boeing Commercial Airplanes, said.

“We also have buyers who recognised if they order a freighter today it will be three to four years before they get it and I think they are assuming the market will come back, just as we are.”

Earlier this month, Singapore Airlines posted a 53 percent drop in its third quarter net profit and expects further deterioration in its business due to sluggish demand and rising fuel costs.