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Fri, 25 February 2022

Singapore Airlines Reports First Quarterly Profit Since Start of COVID19 Pandemic

(25 Feb 2022)  Singapore Airlines Group has reported its first quarterly profit since the onset of the pandemic.

The third quarter net profit of $85 million came amid a significant step-up in air travel to and through Singapore in the October - December 2021 period, as well as continued robust demand and strong yields in the cargo market.

Singapores launch of Vaccinated Travel Lane (VTL) arrangements and its subsequent expansion, as well as the groups nimble response, resulted in it being the first to open sales on almost all available routes, helped unlock pent-up demand during the year-end travel season.

The group carried 1.1 million passengers during the quarter, more than five times the number from a year before and double that of the second quarter of FY2021/22.

Passenger capacity, measured in available seat-kilometres (ASKs), grew 183.8% year-on-year, as SIA ramped up flights in response to the VTLs. By the end of the quarter, group passenger capacity reached 45% of pre-COVID19 levels.

Singapore Airlines B777 and A380 aircraft at Changi Airport. Picture by Steven Howard of TravelNewsAsia.com Click to enlarge.
Singapore Airlines B777 and A380 aircraft at Changi Airport. Picture by Steven Howard of TravelNewsAsia.com

Improvements in passenger and cargo revenue resulted in SIA Group revenue rising $1,249 million (+117.1%) year-on-year to $2,316 million.

Passenger flown revenue increased by $650 million (+355.2%) to $833 million, on the back of a 556.8% growth in traffic (revenue-passenger kilometres, RPKs) that outpaced capacity expansion, resulting in the passenger load factor rising 18.9 percentage points to 33.2%.

Cargo flown revenue rose by $607 million (+81.6%) to $1,351 million, surpassing the $1 billion mark for the first time and setting yet another new quarterly record.

Robust demand during the traditional cargo peak period was buoyed by retail inventory restocking and strong e-commerce traffic. Cargo yields rose significantly (+26.9%) amid an ongoing industry capacity crunch.

The expansion of operations resulted in group expenditure growing $842 million (+60.2%) year-on-year to $2,240 million. This increase consisted of a $359 million increase (+131.0%) in net fuel costs, a $331 million increase (+26%) in non-fuel expenditure, and $152 million from the year-on-year impact of the fuel hedging ineffectiveness recorded last year and fair value changes on fuel derivatives.

Net fuel cost rose to $633 million, mainly on higher fuel prices (+$330 million) and an increase in volume uplifted (+$173 million), which was partially offset by a swing from a fuel hedging loss to a gain (-$144 million). The increase in non-fuel expenditure by 26% was well within the 183.8% increase in passenger capacity and the 49.2% increase in cargo capacity.

As a result, the SIA Group recorded an operating profit of $76 million for the three months ended December 2021, versus a $331 million loss from a year before (+$407 million).

April to December 2021 Profit and Loss

As international air travel progressively recovered over the course of the year, SIA Groups operating loss for the nine months to December 2021 narrowed by $1,651 million or 75.3% year-on-year, to $543 million.

Revenue grew $2,442 million (+90.4%) from significant passenger and cargo flown revenue improvements. Passenger flown revenue increased $1,248 million (+369.2%) on the back of a recovery in passenger traffic. Cargo flown revenue rose $1,242 million (+62.6%), driven by higher loads carried (+54.3%) and yields (+5.5%).

Group expenditure increased by $791 million (+16.2%) year-on-year to $5,686 million. This increase consisted of a $793 million increase (+122%) in net fuel cost, a $488 million increase (+12.7%) in non-fuel expenditure, and an offset of $490 million from the year-on-year impact of the fuel hedging ineffectiveness recorded last year and fair value changes on fuel derivatives. Net fuel cost rose to $1,443 million mainly on higher fuel prices (+$763 million) and an increase in volume uplifted (+$419 million), which was partly offset by a swing from a fuel hedging loss to a gain (-$353 million). The increase in non-fuel expenditure by 12.7% was modest, relative to a 296.1% increase in passenger capacity and a 49.4% increase in cargo capacity. The SIA Group continues to exercise cost discipline as it pursues efficiency and cost reduction initiatives as part of its ongoing three-year Transformation programme that began in FY2020/21.

Group net loss was $752 million for the first nine months, a year-on-year improvement of $2,857 million. This was largely attributable to the better operating performance (+$1,651 million), and the absence of $1,630 million in non-cash cost items recorded in the previous year, partly offset by a reduction in tax credit of $474 million.

As a result of the stronger performance for the third quarter, the SIA Group recorded an operating cash surplus of $322 million for the first nine months of the year. This reversed the operating cash burn that it had been experiencing since the start of the pandemic.

Third Quarter FY2021/22 Balance Sheet

By the end of the third quarter, the group had raised $21.6 billion in fresh liquidity since 1 April 2020. This includes proceeds from the Rights 2021 Mandatory Convertible Bonds (MCB), which raised $6.2 billion in additional liquidity in June 2021.

As of 31 December 2021, SIA Group shareholders equity was $22.1 billion, an increase of $6.2 billion compared to 31 March 2021. Cash and bank balances saw an increase of $4.3 billion, rising to $12.1 billion primarily due to the Rights 2021 MCBs. Total debt balances increased by $0.6 billion to $14.9 billion, mainly due to the increase in lease liabilities as a result of sale-and-leaseback activities. Consequently, the groups debt-equity ratio fell from 0.90 times to 0.67 times. In addition to the cash on hand, the Group retains access to $2.1 billion of committed lines of credit which remains undrawn.

Fleet Development

During the quarter, the strong demand for VTL services enabled the reactivation of A380 operations to London and Sydney.

SIA took delivery of one Airbus A350 and four Boeing 737-8 aircraft, while Scoot took delivery of two A321neo aircraft.

As of 31 December 2021, SIAs operating fleet comprised 121 passenger aircraft and seven freighters while Scoot had 50 passenger aircraft in its operating fleet.

The average age the groups aircraft is six years and three months.

Network Recovery

During the quarter, with the continued expansion of its network, the group saw a significant increase in the number of destinations that it served, led by the restoration of services to 12 cities in India, including VTL services from Chennai, Delhi and Mumbai, as well as the resumption of flights to several points in South East Asia.

SIA also launched services on the Singapore-Vancouver-Seattle route, and resumed flights to Houston (via Manchester).

Scoot launched operations to Gatwick (via Bangkok) and Davao, and resumed services to Jeddah.

By the end of the December quarter, the groups VTL network covered 31 cities across key markets in Australia, Europe, India, North America, South East Asia and  South Korea.

The groups passenger network covered a total of 85 destinations, up from 65 in the previous quarter, with SIA serving 63 and Scoot serving 35.

The groups cargo network comprised 95 destinations, up from 78 as at the end of the prior quarter.

In January 2022, SIA began passenger services between Milan and Barcelona, SIA's second fifth freedom service in Europe.

SIA also resumed passenger services to Denpasar in February 2022, while Scoot launched operations to Miri, and resumed operations to Amritsar, Gold Coast and Hanoi during the first two months of 2022.

In the coming months, the A380 fleet will expand its operations to Delhi, Mumbai and New York via Frankfurt.

Based on current published schedules, the SIA Group expects passenger capacity to reach 51% by March 2022. This should result in an average capacity of 47% for the fourth quarter of FY2021/22, compared to pre-COVID19 levels.

The group expects to serve over 70% of its total pre-COVID19 destinations by the end of the financial year.

SIA is expanding its VTL network to progressively include Cairns, Darwin, Dubai, Hong Kong, Manila, New York (Newark), and Phuket from today, 25 February 2022.

SIA will also step up frequencies for flights between Singapore and several existing VTL destinations including Bandar Seri Begawan, Colombo, Male, and Phnom Penh.

Scoot will progressively include Chiang Mai, Cebu, Clark, Davao, Hong Kong, Jeddah, Krabi, London (Gatwick), and Phuket to its VTL network, and will also increase its frequency for services between Singapore and Phuket.

With these new additions, the SIA Group will operate VTL services from 49 cities in 25 countries to Singapore.

During the Northern Summer operating season (27 March 2022 to 29 October 2022), SIA will resume daily non-stop services to Newark. With this, SIA will have thrice daily services to the New York City metro area alongside twice daily flights to John F. Kennedy International Airport.

The Singapore-Vancouver-Seattle service, which was originally planned as a seasonal operation, will continue beyond the current Northern Winter.

A fourth daily Heathrow service will be added, reinstating London frequencies to pre-COVID19 levels.

Services to Cairns and Darwin are also expected to resume in the coming months.

Bonds and Partnerships

SIA successfully raised a seven-year US$600 million (or about S$810 million) bond in January 2022. This is SIAs second US dollar-denominated bond issue, building on its successful debut issuance last year. Inclusive of this bond issue, SIA has raised around $22.4 billion in additional liquidity since 1 April 2020. SIA also has access to more than $2.1 billion in committed lines of credit.

This liquidity strengthens its financial foundation, enabling the group to make strategic investments to secure its position. Deepening collaboration with like-minded airlines remains an integral part of the groups strategy and the recent expansion of separate partnerships with Garuda Indonesia and Malaysia Airlines will see the airlines working closely to offer more options and value to customers.

Looking Ahead

While demand should continue to recover, especially on VTL services, SIA expects passenger traffic to moderate in the fourth quarter after the end of the year-end holiday season.

Following a record peak period in the third quarter of FY2021/22, SIA has said that it expects overall air cargo demand to ease in the fourth quarter. This is in line with seasonal fluctuations, and the traditional slowdown in exports during the Lunar New Year holiday period. Nonetheless, both air and sea freight capacities are expected to remain tight during the quarter, supporting loads and yields.

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