SIA posts full year net profit of $ 804 m

Singapore Airlines Group has reported a net profit of $ 804 million in the 2015-16 financial year, a $ 436 million improvement over the net profit recorded in the last financial year (+118.5%).

Group operating profit increased $ 271 million (+66.1%) year-on-year to $ 681 million. Dividends received from long-term investments were higher (+$ 102 million), while the Group’s share of losses of associated companies were reduced by $ 118 million. In addition, there was a refund for a fine paid by SIA Cargo in a prior year (+$ 117 million). These favourable factors were partly offset by higher tax expenses in the year (-$ 84 million), an absence of exceptional gains (-$ 35 million) realised in the last financial year, and weaker results from joint venture companies (-$ 29 million).

Group revenue was $ 15,228 million, down $ 338 million or 2.2% from last year, mainly attributable to lower passenger revenue at the Parent Airline Company and lower cargo revenue, compensated in part by higher revenue from subsidiary airlines and income earned upon the release of seven A350-900 delivery slots. Both passenger and cargo yields declined compared to last year.

Group expenditure fell $ 609 million or 4.0% to $ 14,547 million. Net fuel cost declined by $ 1,053 million, arising from a 41.3% drop in average jet fuel price (-$ 2,152 million), partially offset by an increase in hedging loss (+$ 591 million), the strengthening of the US Dollar against the Singapore Dollar (+$ 298 million), and higher volume uplifted (+$ 210 million). The hedging loss resulted from 53.8% of the Group’s fuel requirement being hedged at a weighted average price of $ 100 per barrel. Ex-fuel costs rose $ 444 million (+4.6%), mainly due to capacity growth of SilkAir and Scoot, and the consolidation of Tiger Airways for the full financial year versus half a year in FY2014-15.

The Parent Airline Company earned an operating profit of $ 485 million in the financial year, up $ 145 million compared to the prior year. The improvement in operating performance was largely owing to lower net fuel costs, which declined $ 973 million over last year. This was partly offset by lower passenger flown revenue as yields shrank 5.4% year-on-year to a five-year low, reduced other revenue, and higher staff and aircraft maintenance and overhaul costs.

SIA Engineering’s operating profit of $ 104 million was $ 20 million higher compared to last year. Despite an increase in revenue from line maintenance services and fleet management programs, revenue decreased $ 6 million due to lower airframe and component overhaul revenue. Expenditure, on the other hand, reduced by $ 26 million mainly from lower subcontract and staff costs, partially offset by an exchange loss incurred compared to an exchange gain in the previous year.

SilkAir reported a $ 50 million year-on-year improvement in operating performance, primarily on account of a $ 64 million increase in passenger revenue, supported by its 11.1% growth in passenger carriage, albeit at lower yield (-2.9%). Operating expenses rose in tandem with capacity growth, but this was largely compensated for by fuel cost savings.

SIA Cargo’s full year operating loss widened by $ 28 million compared with FY2014-15. While operating expenses declined $ 168 million, mainly due to lower fuel costs, this could not fully cushion the $ 196 million contraction in revenue, which was driven down by yield erosion of 11.6%, partially offset by higher freight carriage (+2.6%).

Scoot marked its first full year operating profit since commencing operations, improving $ 95 million year-on-year. Passenger revenue increased $ 106 million from 29.1% growth in traffic, while yield was flat. Unit cost fell 19.0%, benefiting from lower fuel prices and a more fuel-efficient 787 fleet.

Tiger Airways’ operating profit for the financial year was $ 14 million, contrasting with a full year loss of $ 40 million incurred in the prior year (+$ 54 million).The better operating performance was mainly due to higher passenger revenue with yield improving 2.9%, and reduced net fuel costs, partially offset by an increase in aircraft depreciation, lease rentals and maintenance costs.

The Parent Airline Company’s passenger carriage (in revenue passenger kilometres) was almost flat year-on-year (+0.1%), against a 1.4% decline in capacity (in available seat-kilometres). Passenger load factor therefore increased 1.1 percentage points to 79.6%.

SilkAir recorded 11.1% growth in passenger carriage, on the back of capacity injection of 9.1%. Passenger load factor was 71.5%, 1.3 percentage points higher than the previous financial year.

Scoot’s capacity expanded 25.7% year-on-year, which was well absorbed by the market, as passenger carriage surged 29.1%. Consequently, passenger load factor was up 2.3 percentage points to 84.5%.

Tiger Airways’ passenger carriage dipped 1.5%, trailing a 2.9% drop in capacity. Passenger load factor edged up 1.2 percentage points to 83.3%.

SIA Cargo’s airfreight carriage (in load tonne-kilometres) increased 2.6% year-on-year, lagging behind capacity expansion of 4.9%. Load factor dropped 1.4 percentage points to 61.9%.

During the January-March 2016 quarter, the Parent Airline Company took delivery of its first A350-900, and removed two 777-200ERs and two A330-300s from service in preparation for lease return. As at 31 March 2016, the operating fleet of the Parent Airline Company comprised 102 passenger aircraft (54 777s, 28 A330-300s, 19 A380-800s and one A350-900), with an average age of 7 years and 5 months.

In the 2016-17 financial year, the Parent Airline Company expects to take delivery of 13 A350-900s, of which 12 are planned to enter into service by March 2017. Four A330-300s and one 777-300 are planned to be returned to lessors. This will bring the Parent Airline Company’s total operating fleet to 109 aircraft by the end of the financial year. Capacity for FY2016-17 is expected to be flat year-on-year, however, due to ongoing aircraft cabin upgrade programs.

SIA Cargo maintained a fleet of nine 747-400 freighters as at 31 March 2016. Two of the freighters are due for return to their owners upon expiry of operating leases during the course of FY2016-17, reducing the fleet size to seven aircraft by the end of March 2017. Cargo capacity is expected to grow 3-4% in view of projected higher bellyhold capacity in FY2016-17. In the coming months, the Parent Airline Company will add three new destinations, with thrice-weekly A350-900 Dusseldorf service from 21 July 2016 and four-times-weekly 777-200 Canberra-Wellington service from 20 September 2016. 

SIA will be the first airline to operate regularly scheduled international flights to and from Canberra, and the first airline to link Canberra with Wellington.

Services in selected markets across the network will also be adjusted. Increased frequencies have commenced to Bangkok (from five flights daily to six daily), Colombo (from seven flights per week to 10 per week) and Milan (from five weekly to six weekly) services. Brisbane will be served with three additional flights per week with effect from 28 May 2016, increasing weekly operations to 24flights. Supplementary services will also be mounted to various points including Ahmedabad, Adelaide, Kolkata, Mumbai, Rome and Sydney to cater to seasonal peak demand during the Northern Summer Season.

SilkAir will launch services to Vientiane and Luang Prabang in Laos via circular routing from 31 October 2016, subject to applicable approvals. The route will be operated thrice weekly on the A320 fleet, featuring both Business and Economy class cabins. With the new destinations, the network coverage by SilkAir and SIA will effectively span across all countries within South East Asia.

Scoot commenced operations to Jeddah on1 May 2016, taking over SIA’s services, and will launch three-times-weekly service to Sapporo via Taipei from 1 October 2016. In addition, Scoot is expanding its network to India with three new destinations: daily service to Chennai (replacing Tiger Airways’ operations) and thrice-weekly service to Amritsar from 24 May 2016, and four-times-weekly service to Jaipur from 2 October 2016.

Tiger Airways commenced a four-times-weekly service to Wuxi from 28 April 2016. It will continue to expand its network in China by introducing a thrice-weekly operation to Zhengzhou, from 28 June 2016. Tiger Airways is the only airline offering direct flights from Singapore to these two cities.

With the announced new routes, the Group’s network will expand to 130 destinations across 36 countries, including Singapore.

SIA Cargo will continue to deploy capacity to match demand and pursue charter opportunities. 

Outlook

The Group is contending with a challenging operating environment in key markets, caused in part by weak economic activity and relatively rapid growth in capacity, evidenced by increasing promotional fare activity. Nevertheless, the Group is well positioned to compete in this environment.

The entrance of the A350-900 fleet will help to boost the Group’s network competitiveness, improve operating efficiency, and offer opportunities to open up more new routes on long-haul destinations. In addition, the full ownership of Tiger Airways is expected to enhance synergies across the SIA Group.

For the April-June 2016 quarter, advance passenger bookings are tracking positively against seat capacity.

Outlook remains cautious for air cargo amid the economic slowdown in China and ongoing uncertainty surrounding the global economy. Coupled with ample capacity in the industry, yield remains under pressure. SIA Cargo will continue to focus on higher-yielding product segments.

In light of on-going fuel price volatility, the Group continues to hedge its fuel requirements prudently. As at the start of the 2016-17 financial year, the Group had hedged 42% of its first quarter fuel requirement at a weighted average Singapore Jet Kerosene (MOPS) price of $ 87 per barrel. The full year’s fuel requirement was 25% hedged in MOPS at USD83 per barrel and 6% in Brent at $ 64 per barrel.

The Group remains fully committed to its multi-pronged approach to address the structural changes that have been taking place in the industry, through its portfolio of airlines serving both full-service and budget airline segments of the market, its multi-hub strategy, the pursuit of adjacent business opportunities, and ongoing enhancement of premium products and services.