UPDATE 3 – Singapore Airlines warns of pressure on passenger earnings due to competition and costs

(Adds compensation offer in paragraph 9, capacity in paragraph 13 and group details in paragraph 13.)

July 31 (Reuters) – Singapore Airlines warned on Wednesday that a key revenue metric would remain under pressure this year as increasing competition depressed average prices and higher fuel costs dented group profits.

Airlines around the world have increased the number of flights and routes as they rebuild from the pandemic, seeking to meet strong demand for air travel, particularly during the summer months.

This results in increased competition and squeezes airline margins as ticket prices fall and fuel costs rise.

“The global aviation industry continues to face challenges from increasing competition, supply chain bottlenecks, inflationary pressures on operating costs, including at airports and service providers, and geopolitical uncertainties,” the airline said.

“Passenger yields are expected to remain below last year’s levels as more capacity comes to market, particularly in the Asia-Pacific region,” the company added.

Yield, a measure of the profitability of a flight, fell 4.6 percent to 10.3 Singapore cents per kilometer in the June quarter from 10.8 Singapore cents a year earlier.

This is the company’s first earnings announcement since a flight from London to Singapore encountered severe turbulence on May 20, leaving dozens injured and one dead.

The airline made compensation offers to passengers on this flight in June.

In the quarter ended June 30, the company’s expenses rose 14% year-on-year to S$4.25 billion ($3.17 billion) as fuel costs rose 30%.

This came at the expense of the national carrier’s revenue, which fell to S$452 million from S$734 million a year earlier, missing the Visible Alpha consensus of S$504.6 million.

Capacity grew faster than passenger volume, and passenger load factor – a measure of how many seats on the aircraft are occupied – was 86.9 percent for the entire group, compared with 88.9 percent in the previous year.

The Singapore Airlines Group includes Singapore Airlines and budget carrier Scoot. (1 US dollar = 1.3387 Singapore dollars) (Reporting by Adwitiya Srivastava and Sneha Kumar in Bengaluru; additional reporting by Lisa Barrington; Editing by Shinjini Ganguli and Sonia Cheema, Kirsten Donovan)