Singapore Airlines Group Reports H1 Results

Singapore Airlines Group has reported an operating profit of $302 million for the first half of the 2016-17 financial year, improving $62 million (+25.8%) year-on-year.

Group revenue declined $273 million from one year ago to $7,305 million (-3.6%).

Passenger flown revenue from the parent airline company fell $320 million (-6.4%), as downward pressure on yields persisted. This was partly compensated by higher flown revenue from Scoot (+$88 million), supported by its rapid growth.

Cargo and mail revenue dropped $99 million (-9.6%), notwithstanding higher freight carriage, as cargo yield was further eroded.

The decline in passenger flown revenue and cargo revenue was partly mitigated by growth in other revenue, largely arising from up-front recognition of revenue from unutilised tickets, partially offset by the absence of income earned upon the release of seven aircraft delivery slots reported last year.

Group expenditure contracted by $335 million to $7,003 million (-4.6%). Net fuel costs declined $622 million (-25.2%), arising from a 21% drop in average jet fuel price (-$411 million), lower hedging loss (-$282 million) and weaker US Dollar against the Singapore Dollar (-$4 million), partly offset by higher uplift (+$75 million).

Ex-fuel costs were up $287 million or 5.9% from one year ago, partly attributable to capacity expansion by SilkAir and Scoot.

The parent airline company registered a $70 million year-on-year increase in operating profit for the first half of the financial year. Total revenue declined $343 million, as passenger flown revenue dropped $320 million on the back of a 3.2% contraction in passenger carriage (measured in revenue passenger-kilometres) and a 2.9% decline in passenger yield. Passenger load factor fell 1.9 percentage points to 78.1%, on a marginal decline in capacity (measured in available seat-kilometres) of 0.9%. Expenditure was  $413 million lower, with $525 million savings in net fuel costs, partially offset by an exchange loss compared to exchange gain last year, higher staff costs, and higher aircraft maintenance and overhaul costs.

SilkAir reported an operating profit of $44 million in the first half, up $18 million or 69.2% from last year. Total revenue increased $8 million mainly from higher other revenue, while passenger flown revenue was largely flat year-on-year. Passenger carriage increased by 8.1%, trailing capacity growth (+10.3%), leading to a lower passenger load factor of 69.9% (-1.4 percentage points). Yield was 7.5% lower compared to one year ago. Expenditure declined by $10 million, as fuel cost savings more than offset the higher costs from expansion.

Scoot recorded an operating profit of $6 million in the first half of the financial year, improving $28 million year-on-year. Total revenue rose $95 million (+45.2%), supported by substantial growth in passenger carriage (+53.2%), though discounted by a weaker yield (-5.7%). Capacity expanded more rapidly by 55.6%, and  consequently passenger load factor was 1.3 percentage points lower at 81.8%. Expenditure rose $67 million (+28.9%) largely in tandem with the increase in capacity, although unit cost was down 19.2%.

Tiger Airways achieved an operating profit of $11 million, reversing a loss in the prior year. Passenger carriage fell 2.3% on the back of a capacity dip (-1.1%), but yield was flat year-on-year. Passenger load factor dropped by 1.0 percentage point to 82.8%. Reduced expenditure ($24 million) more than offset the drop in revenue (-$3 million) from lower traffic, as fuel costs shrunk.

SIA Cargo’s operating loss widened by $33 million to $45 million. Freight carriage grew 7.3%, outpacing the capacity increase of 5.7%, resulting in an increase in cargo load factor by 0.9 percentage point to 61.6%. Revenue, however, declined $101 million as yield dropped 16.6%. This was partly mitigated by a reduction in expenditure, which was mainly attributable to lower fuel costs.

SIA Engineering’s operating profit decreased by $25 million compared to last year. Revenue fell $8 million, mainly from fleet management programme and line maintenance services. Expenditure rose $17 million, largely due to higher provision for a profit sharing bonus that arose from the divestment of Hong Kong Aero Engine Services Ltd (HAESL), partly compensated by lower subcontract costs.

First Half Net Profit

The group reported a net profit of $322 million for the first half, up $17 million (+5.6%) compared to the same period last year. In addition to improved operating results, the Group recognised a $142 million gain from SIA Engineering’s divestment of HAESL. These were partially offset by lower dividends from long-term investments (-$100 million), a widened share of losses from associates (-$59 million), Scoot’s impairment on two 777-200 aircraft (-$21 million), and higher loss on disposal of aircraft (-$10 million).

Second Quarter 2016-17

Group operating profit for the second quarter declined $20 million to $109 million (-15.5%), as the $174 million fall in expenditure was insufficient to cushion the $194 million reduction in revenue.

Most companies in the group recorded weaker operating results amid a sluggish global economy. However, Scoot and Tiger Airways registered improvements year-on-year as the low-cost carriers continued to perform better on the back of an extended network and reduced operating expenditure.

Group net profit was $65 million, $149 million lower than the second quarter last year. On top of weaker operating results, lower dividends from long-term investments (-$88 million), Scoot’s impairment on 777-200 aircraft (-$21 million), and weaker results from associated companies (-$18 million) added to the headwinds.

Interim Dividend

The company is declaring an interim dividend of 9 cents per share (tax exempt, one-tier), amounting to $106 million, for the half-year ended 30 September 2016. The interim dividend will be paid on 24 November 2016 to shareholders as of 15 November 2016.

Fleet Development

During the July-September quarter, the parent airline company added two A350-900s to the operating fleet and decommissioned one A330-300 in preparation for lease return.

As at 30 September 2016, the operating fleet of the parent airline company comprised 104 passenger aircraft (54 B777s, 26 A330-300s, 19 A380-800s and five A350-900s), with an average age of 7 years and 8 months.

SilkAir sold one A319-100 during the second quarter. As at 30 September 2016, SilkAir operated 30 aircraft – 11 A320-200s, three A319-100s and 16 B737-800s – with an average age of 4 years.

In the second quarter, Scoot took delivery of one B787-8, increasing its operating fleet to 12 B787s (six B787-9s and six B787-8s), with an average age of 1 year and 1 month as at 30 September 2016.

Tiger Airways operated 23 aircraft – 21 A320s and two A319s – with an average age of 5 years and 5 months.

SIA Cargo operated a fleet of nine B747-400 freighters as at 30 September 2016.

Route Development

During the July-September quarter, the parent airline company launched inaugural flights to Dusseldorf and to Wellington via Canberra. These were followed in late October by the commencement of non-stop daily A350-900 services to San Francisco, and new Manchester-Houston services upon the suspension of Munich-Manchester and Moscow-Houston services. Munich and Moscow are now served on a non-stop basis. Services to Sao Paulo (via Barcelona) were suspended, with the last flight operated on 20 October 2016. The network of the parent airline company now consists of 61 destinations across 31 countries, including Singapore.

As part of the Northern Winter Schedule, more services to Adelaide, Christchurch and Kolkata will be mounted to cater to peak demand. In addition, seasonal flights to Sapporo will be operated from 1 December 2016 to 5 January 2017.

SilkAir commenced three-times-weekly circular operations to Vientiane and Luang Prabang from 31 October 2016. Fuzhou will be added to the network with effect from 21 November 2016, bringing the number of destinations to 52 across 14 countries.

Scoot started operations to Sapporo (via Taipei), Jaipur and Dalian (via Qingdao) in October 2016. It will introduce its first European long-haul service to Athens from 20 June 2017, expanding its network to 24 destinations across 10 countries.

Tiger Airways’ network remains at 40 destinations in 12 countries.

Overall, including the announced new routes, the portfolio of airlines in the group will be serving 132 destinations across 36 countries.

Fuel

Fuel prices remain volatile given the uncertainty over how the proposed cut in OPEC oil production would be implemented. For the second half of the financial year, the group has hedged 29.3% of its jet fuel requirement in Singapore Jet Kerosene (MOPS) and 3.0% in Brent at weighted average prices of USD68 and USD63 per barrel, respectively. 

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