Singapore Airlines CEO sees risk to cargo yields beyond US-China trade dispute

NEW YORK — As the brewing trade battle between the United States and China threatens to slow demand for air freight, the market is also facing pressure as demand gets in line with supply, according to Singapore Airlines (SIA) chief executive Goh Choon Phong.

"From a business perspective, we would like to see countries around the world to work together to grow the economy, rather than contributing to the slowdown," Mr Goh said in an interview with Bloomberg Television's Ramy Inocencio.

Last year "was a great year for cargo", Mr Goh said, as an unanticipated jump in demand outpaced capacity.

"Even without these aspects of world-trade impact, you will be expecting people to put in capacity," he said in the interview broadcast on Friday (June 22) in Singapore. "When capacity and demand are more balanced, you will then see lighter load into overall load factor. You will see pressure on yield."

Mr Goh's comments shed light on another potential threat to cargo rates as carriers brace for a possible US-China trade war that could undermine a market in which demand has risen since the fourth quarter of 2016.

Asia-Pacific airlines, including Cathay Pacific Airways, Korean Air Lines and SIA, control 37 per cent of the global air-freight market.

Shares of the Singapore flag carrier declined 0.4 per cent to S$10.97 as of 9.11am, trimming its gain this year to 2.8 per cent.

OIL PRICES

Meanwhile, Mr Goh said, SIA is well-positioned to contend with rising fuel costs.

"We have a fairly consistent hedging strategy basically to manage, not to speculate, but to manage the volatility of oil prices," he said at Bloomberg's office in New York. "We're fairly well-hedged at the moment."

The airline has hedged 42.9 per cent of its fuel needs in the quarter ending in June at an average price of US$64 a barrel. Last year, the company extended its hedging contracts to as long as five years, from a previous maximum of 24 months.

The carrier also is in discussions with Singapore authorities over new fees to help fund the construction of a terminal and runway at the city-state's Changi Airport.

"We want to work very closely with Changi to make sure that not just the immediate concerns, but the longer term concerns of the airport, and the ecosystem and the hub in Singapore continue to be something that we can nurture and grow," Mr Goh said.

The authorities in July will impose an airport-development levy of S$10.80 on passengers, while charges on airlines to land, park and use jet bridges will climb 1 per cent.

While US airlines cut back on amenities for passengers, Mr Goh said Singapore Air is committed to keeping the high level of customer service for which Asian carriers are known.

"We would never retreat from our brand promises," he said. BLOOMBERG