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Singapore Airlines H1 Profits Down 62%

Travel News Asia Latest Travel News Podcasts Videos Monday, 7 November 2011

The Singapore Airlines Group has reported a net profit of $239 million in the first half of the 2011-12 financial year, $394 million (-62%) lower than the same period a year ago.

Operating profit declined to $134 million, $462 million (-78%) lower than the first half of the previous financial year.

Group revenue grew $180 million (+3%) to $7,277 million, supported by higher passenger carriage and flat yields, despite increased competition and weak business sentiment.

Group expenditure at $7,143 million was higher by $642 million (+10%), while expenditure on fuel increased $747 million (+35%) as jet fuel prices spiked 45% over the same period last year. This was partially offset by a $118 million year-on-year improvement in fuel hedging.

All the main companies in the group recorded weaker operating results for the first half of the financial year. The operating profit of the parent airline company fell $327 million (-86%), owing to higher fuel expenditure which increased $643 million (+37%) to $2,384 million. With stringent cost discipline, passenger unit cost excluding fuel declined 7%.

The operating results of the main companies in the group for the first half of the financial year are as follows:

- Parent Airline Company Operating profit of $53 million ($380 million profit in 2010)
- SIA Engineering Operating profit of $69 million ($71 million profit in 2010)
- SilkAir Operating profit of $34 million ($36 million profit in 2010)
- SIA Cargo Operating loss of $31 million ($102 million profit in 2010)

Second Quarter 2011-12

The group net profit attributable to equity holders for the July-September quarter was $194 million, a decline of $186 million (-49%) over the same period in the previous year.

Group revenue grew 2% (+$68 million) to $3,699 million, while group expenditure at $3,576 million rose at a faster pace of 9% (+$290 million) on higher jet fuel prices.

Consequently, group operating profit for the second quarter fell $222 million (-64%) to $123 million.

H1 2011-12 Operating Performance

The parent airline company uplifted a total of 8.5 million passengers in the first half of the financial year, an increase of 3.3% over the same period in the previous year. Growth in passenger carriage (+3.8% in revenue passenger-kilometres) was slower than the expansion in capacity (+6.3% in available seat-kilometres), resulting in a 1.9 percentage point decline in passenger load factor to 77.5%.

SilkAirs capacity growth of 9.4% for the first half was fully matched by the increase in system-wide passenger carriage. As a result, passenger load factor was flat at 74.2%. Overall breakeven load factor was 1.8 percentage points higher as unit cost increased at a faster pace (+8.4%) than yields (+5.2%).

On the cargo side, SIA Cargos freight carriage (in load tonne-kilometres) improved 2% year-on-year, slightly higher than the 1.9% increase in capacity (in capacity tonne-kilometres). Consequently, cargo load factor improved marginally by 0.1 percentage point. Cargo breakeven load factor at 66.7% was up 6.6 percentage points, from higher unit cost (+3.6%) and weaker yields (-6.7%).

Interim Dividend

The company is declaring an interim dividend of 10 cents per share (tax exempt, one-tier), amounting to $118.7 million, for the half- ear ended 30 September 2011 (versus 20 cents interim dividend in the previous year). The interim dividend will be paid on 2 December 2011 to shareholders as at 21 November 2011.

Fleet and Route Development

The parent airline company took delivery of three Airbus A380-800s, decommissioned four Boeing 747-400 aircraft (three sold and one in preparation for sale) and returned one B777-300 aircraft on expiry of the lease in the first half of the financial year. As at 30 September 2011, the operating fleet of the parent airline company comprised 106 passenger aircraft three B747-400s, 65 B777s, 19 A330-300s, 14 A380-800s and five A340-500s with an average age of 6 years 4 months.

As at 30 September 2011, SIA Cargo operated a fleet of 13 B747-400 freighter aircraft, while SilkAirs operating fleet comprised 19 aircraft 13 A320-200s and six A319-100s.

Capacity continues to be adjusted to match demand across the group. In the first six months of the financial year, the parent airline company added capacity to growth areas, such as Hong Kong, Guangzhou, Taipei, Mumbai and Jakarta, while the non-stop service to Los Angeles was scaled back. SilkAir launched services to Kolkata, complementing the Singapore Airlines flights to the city, and commenced flights to Koh Samui.

Subsequent Event

Pursuant to the renounceable Rights Issue of Tiger Airways Holdings Limited, Singapore Airlines had been allocated 89,504,625 Rights Shares, increasing the total number of shares held by the company to 268,513,875. Based on an issue price of $0.58 per Rights Share, the total consideration paid by the company in relation to the subscription of the Rights Shares was approximately $51.9 million. The companys shareholding in Tiger Airways remains unchanged at approximately 32.8% of the enlarged share capital immediately following the Rights Issue.

Outlook

Singapore Airlines says advance passenger bookings are showing signs of weakness, particularly in Europe and the United States. Global Purchasing Manager Indices have also fallen, pointing to weaker demand for air freight. Both passenger and cargo yields are therefore expected to remain under pressure.

Exacerbating the impact of the weak outlook is the high cost of fuel, which is compounded by the recent strength in the US dollar. Forward prices for jet fuel remain high and volatile.

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