PASSENGER bookings remain strong at Singapore Airlines (SIA) but profits are expected to be squeezed by sky-high oil prices.

The forecast came during SIA's annual general meeting yesterday, a day after the airline reported first-quarter earnings had fallen 15.4 per cent.

Chief executive Chew Choon Seng said at the AGM: 'Given what we see unfolding in the global economy and the pressure on costs for fuel, I think the operating margins are going to be narrower. There is no question about that.'

But he pointed out after the meeting that business travel is still buoyant: 'We do not see any signs of corporate travel fading away suddenly. There is still business going on around the world.'

The front end of the cabin accounts for an estimated 40 per cent of SIA's revenues but much still hinges on fuel.

SIA reported yesterday that first-quarter spending on fuel had jumped 64.7 per cent from a year earlier, adding $739 million to total expenditure.

Mr Chew said: 'Fuel is such a big factor in our operations now, comprising well over 40 per cent of total operating costs.'

Prices have shot up by over 40 per cent in the past seven months, and some analysts expect things to get worse before they get better.

Merrill Lynch's Paul Dewberry and Ying Ying Hou said in a note yesterday that 'with air travel demand softening around the world, we expect the lack of pricing power will continue, leading to further erosion of profits as costs rise'.

They tip SIA earnings to decline in the next three quarters and full-year profits to drop by as much as 31 per cent.

A shareholder asked at the AGM whether, given the challenges, the final dividend of $1 per share paid in the last financial year would be sustainable.

Chairman Stephen Lee said 'the intention is to maintain (the payout) and we will do our best'.

It was assurance enough for the shareholders - mainly retirees - who responded with a round of applause.

Another shareholder urged the airline to pursue more aggressively any opportunities for acquisitions and partnerships with other carriers.

Mr Lee said that while the airline is always open to any new opportunity, the reality is that many countries have restrictive policies on foreign ownership of national carriers.

Mr Chew said later: 'I think we have enough challenges on our hands at the moment with fuel prices...We would consider any good opportunities that present themselves but we are not actively going out there to get involved.'

A planned tie-up with China Eastern Airlines failed to materialise when shareholders of the Shanghai-based carrier rejected the union earlier this year.

SIA shares rose 10 cents to $15.38 yesterday.

karam@sph.com.sg