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Singapore Airlines Reports First Half 08-09 Results

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The Singapore Airlines Group has reported a first half 2008 - 2009 net profit attributable to equity holders of Sin$682 million. This was Sin$250 million (-26.8%) lower than for the same period a year ago. Group revenue improved Sin$922 million (+12.1%) to Sin$8,511 million on account of higher passenger carriage, while group expenditure rose at a faster pace, increasing by Sin$1,329 million (+20.1%).

Expenditure on fuel for the group grew by a staggering Sin$1,587 million (+66.3%) during the six months to September 2008, when fuel prices reached new heights. The average price of jet fuel in the half year increased 75.8% year-on-year from US$88/BBL to US$155/BBL. This was partially mitigated by hedging gains of Sin$532 million.

Consequently, group operating profit declined to Sin$575 million, Sin$407 million (-41.4%) lower than the first half of the preceding financial year.

Operating profit for the Parent Airline Company was Sin$286 million (-36.6%) lower year-on-year, impacted by high fuel expenditure which increased Sin$1,391 million (+72.8%) to Sin$3,300 million. Other cost items were well managed, so that unit cost excluding fuel was actually lowered by 8.3%.

The operating results of the major subsidiary companies are as follows:
• SATS Group Profit of Sin$ 82 million (-12.5%)
• SIA Engineering Profit of Sin$ 57 million (-10.7%)
• SilkAir Profit of Sin$ 5 million (-44.6%)
• SIA Cargo Loss of Sin$ 76 million (profit of Sin$19 million previously)

Second Quarter 2008-09

The group’s net profit attributable to equity holders for the second quarter was Sin$324 million, Sin$184 million (-36.2%) lower than the same period in the previous year. Group revenue rose Sin$412 million (+10.4%) to Sin$4,379 million, while expenditure was up by a higher amount of Sin$699 million (+20.3%), led by higher fuel costs.

As a result, group operating profit for the second quarter declined Sin$287 million (-55.3%) to Sin$232 million. For the second quarter of the financial year, operating profits for the company, SilkAir and SIA Cargo were weighed down by the impact of high fuel cost.

The company is declaring an interim dividend of 20 cents per share (tax exempt, one-tier), amounting to Sin$237 million, for the half-year ended 30 September 2008 (20 cents interim dividend in the previous year). The interim dividend will be paid on 4 December 2008 to members on the Register as at 24 November 2008.

First Half 2008-09 Operating Performance

For the first half of the financial year, Singapore Airlines uplifted a total of 9.6 million passengers, an increase of 2.4% over the same period in the previous year.

Growth in passenger carriage (+5.4% in revenue passenger-kilometres) during the period was slower than the expansion in capacity (+8.5% in available seat-kilometres), resulting in a 2.4 percentage points decline in passenger load factor to 77.9%.

Passenger breakeven load factor moved up by 2.1 percentage points to 72.2% as unit cost increased at a faster pace (+11%) than the improvement in yield (+7.7%). 

SIA Cargo’s capacity (in capacity tonne-kilometres) grew 0.3% for the half year, but with freight carriage (in load tonne-kilometres) declining 1.7%, cargo load factor fell 1.2 percentage points during the period.

Cargo breakeven load factor was up 0.6 percentage point to 63.5%, as the improvement in cargo yield (+12.7%) was lower than the increase in unit cost (+13.8%) due to high fuel cost.

Fleet and Route Development

Singapore Airlines took delivery of three Airbus A380-800s and four Boeing 777-300ERs, it also decommissioned four Boeing 747-400s during the half year. As at 30 September 2008, the operating fleet comprised 101 aircraft – 14 Boeing 747-400s, 76 Boeing 777s, five Airbus A340-500s and six A380-800s – with an average age of six years and three months.

In response to weaker demand, the company suspended services to Osaka via Bangkok from May 2008 and Los Angeles via Taipei from October 2008. From February 2009, services to Amritsar will also be withdrawn. For the Northern Winter schedule, the company will be making progressive changes to flight frequencies to destinations in South East Asia (Penang and Ho Chi Minh), North Asia (Seoul and Osaka) and West Asia (Bangalore and Chennai).

Outlook

The financial turmoil around the world and weak consumer confidence are impacting demand for air transportation. Although advance bookings for the immediate next quarter are holding up reasonably well, there are signs of weakness beyond that. Fuel prices have retreated but fuel remains the biggest single item of operating expenditure.

Recent volatility in currency markets presents another challenge. With fuel and aircraft related payments in US dollars, the sharp appreciation of the US dollar and the concurrent depreciation of the Euro, UK Pound and Australian dollar, all major revenue currencies for the company, is an adverse development, partially mitigated by the company’s ongoing currency hedging programme.

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