Singapore Airline : Group profit improves despite challenging conditions
GROUP FINANCIAL PERFORMANCE
First Quarter 2012-13
The SIA Group posted a net profit of $78 million (+$33 million, or +73%) in the first quarter of the 2012-13 financial year.
Group operating profit of $72 million improved $61 million, albeit off a low base as the Group was confronted with higher fuel costs and depressed demand following the Japanese earthquake in the same quarter last year.
Group revenue grew 6% (+$200 million) to $3,777 million, bolstered by a 9.6% improvement in passenger carriage. This traffic growth was driven by promotions undertaken to boost loads, amid intense competition and weak business sentiment. As a result, yields declined 3% from the same period in the previous financial year.
Expenditure at $3,705 million was up 4%. Although jet fuel prices retreated, fuel cost before hedging was nonetheless 2% higher against last year, mainly attributable to increased fuel uplift due to the 4.3% capacity growth. Staff costs were higher mainly due to increased activities, and wage adjustments following the conclusion of collective agreements with the Unions. Other variable costs also rose in line with the increase in capacity.
The operating results of the main companies in the Group for the first quarter are as follows:
- Parent Airline Company Operating profit of $85 million ($36 million loss in 2011)
- SIA Engineering Operating profit of $34 million ($35 million profit in 2011)
- SilkAir Operating profit of $18 million ($21 million profit in 2011)
- SIA Cargo Operating loss of $49 million ($14 million loss in 2011)
The Parent Airline Company turned around from an operating loss of $36 million in the first quarter of the last financial year to record a profit of $85 million for the three months ended 30 June 2012. Revenue (+7%) rose at a faster pace than expenditure (+3%) on the back of increased passenger carriage (+9.6%), partially offset by lower yields (-3%). Average jet fuel prices for the quarter remained high at above USD130 per barrel despite the recent correction. Other cost items were well contained as a result of continued efforts to maintain strict cost discipline.
On the cargo front, continued weakness in air freight demand exerted downward pressure on cargo loads and eroded yields. As a result, SIA Cargo?s operating loss for the first quarter widened by $35 million.
FIRST QUARTER 2012-13 OPERATING PERFORMANCE
In the first quarter of the financial year 2012-13, the Parent Airline Company?s passenger carriage (in revenue passenger kilometres) grew 9.6% year-onyear. With traffic growth outpacing the 4.3% capacity growth (in available seatkilometres), passenger load factor of 79.5% was 3.9 percentage points higher.
SilkAir?s passenger load factor of 76.4% was marginally higher year-onyear, as capacity injection of 24.7% was matched by a 24.9% increase in passenger carriage.
SIA Cargo recorded a 5.6% decline in load tonne-kilometres despite reductions in available freight capacity (in capacity tonne-kilometres). This brought load factor down by 1.9 percentage points to 62.8%.
FLEET AND ROUTE DEVELOPMENT
The Parent Airline Company took delivery of one A380-800 in the April ? June 2012 quarter. As at 30 June 2012, Singapore Airlines? operating fleet comprised 100 passenger aircraft ? 59 B777s, 19 A330-300s, 17 A380-800s and five A340-500s ? with an average age of 6 years 4 months.
As at 30 June 2012, SIA Cargo operated a fleet of 13 B747-400 freighter aircraft, while SilkAir?s operating fleet comprised 21 aircraft ? 15 A320-200s and six A319-100s. Scoot commenced operations in June 2012 with two B777-200 aircraft to Sydney and the Gold Coast in Australia.
The Group constantly reviews its network to match capacity to demand. From July 2012, the Parent Airline Company?s services to Adelaide will increase from seven to ten times weekly. Four additional weekly services will also be added to London Heathrow from September 2012 and this will be stepped up to four-times-daily services at the end of October 2012. From 28 October 2012, additional services will be introduced to Perth and Mumbai, while frequencies to Milan, Barcelona and Istanbul will be reduced. In addition, services to Athens and Abu Dhabi will cease. SilkAir introduced three-times-weekly services to both Wuhan and Hanoi during the quarter, and there are plans to increase frequencies to Hyderabad from September 2012.
The global economy remains uncertain as Europe struggles to contain its debt crisis, while the United States faces a sluggish recovery. This has negatively impacted business confidence and the outlook for travel demand. Promotional efforts undertaken to boost carriage add downward pressure on yields, especially in Europe and the United States.
Forward indicators for air freight signal a weak outlook for the cargo business. SIA Cargo faces pressure with respect to both demand and yields.
While jet fuel prices have receded in recent weeks, they are still near historical highs. Fuel continues to be the Group?s largest expense item, accounting for about 40% of total expenditure.
In this difficult environment, the Group will maintain its vigilance in cost control and remain nimble in deploying capacity to meet market demand. The Group is well positioned to weather the challenges with its strong balance sheet.