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Friday, 28 July 2023

Singapore Airlines Reports Best Quarterly Performance in its History

(28/07/23)  The SIA Group has reported a net profit of $734 million in the first three months of FY2023/24, the highest quarterly performance in its history.

Group passenger capacity expanded by 32.4% year-on-year as restrictions on international air travel eased globally.

Singapore Airlines (SIA) and Scoot carried 8.4 million passengers during the quarter, 65.5% higher than a year before, with strong demand across all route regions and market segments.

Passenger traffic and load factors improved across all markets, with the year-on-year traffic growth of 49% outpacing the capacity expansion.

The Group achieved a record quarterly passenger load factor (PLF) of 88.9%, with SIA’s PLF at a record 88.1% and Scoot’s at a record 91.7%.

The cargo segment’s performance declined year-on-year as the demand for air freight continued to soften.

Singapore Airlines A380 reg: 9V-SKT. Picture by Steven Howard of TravelNewsAsia.com Click to enlarge.
Singapore Airlines A380 reg: 9V-SKT. Picture by Steven Howard of TravelNewsAsia.com

Cargo loads dipped 11.3% year-on year, while capacity grew 12.1%, primarily from the increase in bellyhold capacity as more passenger flights returned to service.

Cargo load factor fell by 13.7 percentage points to 51.8%, and cargo yields fell 44.3% compared to last year.

Nevertheless, cargo yields at 44.6 cents per load tonne-kilometre remained 50% above the pre-Covid level of 29.7 cents per load tonne kilometre (first quarter of FY2019/20).

As a result, Group revenue rose $551 million (+14%) year-on-year to $4,479 million, with the higher passenger flown revenue of $1,001 million (+37.4%), partially offset by a $555 million (-50.6%) decline in cargo flown revenue.

Expenditure increased $353 million (+10.5%) year-on-year to $3,725 million, with the rise in non-fuel expenditure of $572 million (+27.3%) partly offset by a $220 million decrease (-17.3%) in net fuel cost.

Net fuel cost fell to $1,053 million mainly due to a 33.4% decrease in fuel prices (-$599 million), despite higher volumes uplifted (+$305 million) and lower fuel hedging gains (+$101 million). The 27.3% increase in non fuel expenditure was within the 32.4% increase in passenger capacity.

The Group posted an operating profit of $755 million, $199 million (+35.8%) better than the $556 million operating profit a year before. SIA generated a record operating profit of $738 million, an improvement of $113 million. Operating profit for Scoot was $24 million, up $76 million compared to the prior year.

Group quarterly net profit was up $364 million, or 98.4% higher than last year at $734 million. This was mainly attributable to the better operating performance (+$199 million), a net interest income versus a net finance charge last year (+$144 million), and a share of profits versus a share of losses of associated companies last year (+$81 million), and partially offset by this year’s higher tax expense (-$62 million).

First Quarter FY2023/24 – Balance Sheet

As of 30 June 2023, the Group shareholders’ equity was $17.2 billion, a decline of $2.7 billion from 31 March 2023, following the $3.4 billion redemption in June 2023 of half of the Mandatory Convertible Bonds (MCBs) that were issued in June 2021.

Cash and bank balances decreased $2.5 billion to $13.8 billion, with the drop in cash balance from the redemption of the MCBs partially mitigated by the net cash generated from operations of $1.6 billion, which included proceeds from forward sales.

As total debt balances remained at $14.7 billion, the Group’s debt-equity ratio increased from 0.77 times to 0.86 times.

In addition to the cash on hand, the Group retains access to $2.2 billion of committed lines of credit, all of which remain undrawn.

Fleet Development

SIA added four aircraft to its operating fleet in the first quarter: one Airbus A350-900 (delivered in March 2023), two Boeing 787-10s (delivered in April 2023 and June 2023), and one 737-8 (delivered in February 2022) after its cabin retrofit.

As of 30 June 2023, the Group had 199 aircraft in its operating fleet comprising 192 passenger aircraft and seven freighters.

SIA’s operating fleet comprised 137 passenger aircraft and seven freighters (23 777-300ERs, 12 A380s, 62 A350s, 17 787-10s, seven 737-800s, and 16 737-8s), while Scoot had 55 passenger aircraft (10 787-8s, 10 787-9s, 20 A320ceos, six A320neos, and nine A321neos).

The Group has 99 aircraft in its order book (28 Airbus aircraft (three A350s, 12 A320neos, six A321neos, seven A350Fs), 62 Boeing aircraft (31 777-9s, 18 787s, 13 737-8s), and nine Embraer E190-E2 aircraft).

With an average age of six years and 11 months, the Group operates one of the youngest and most fuel-efficient fleets in the airline industry.

Network Development

In the first quarter, Scoot expanded its footprint in China with the resumption of services to seven destinations (Changsha, Haikou, Nanning, Ningbo, Shenyang, Wuhan, and Xi’an).

With those additions, SIA and Scoot collectively serve 17 destinations in China, with Scoot serving 14 points and SIA serving four points.

As of 30 June 2023, the Group’s passenger network, including Singapore, covered 116 destinations in 36 countries and territories. SIA served 74 destinations while Scoot served 65 destinations.

The cargo network, including Singapore, comprised 121 destinations in 38 countries and territories.

SIA will resume four-times weekly services to Busan from 28 August 2023. During the Northern Winter operating season (29 October 2023 to 30 March 2024), SIA will increase frequencies to Hong Kong SAR, Japan (Fukuoka, Haneda, Nagoya, and Osaka), and Thailand (Bangkok and Phuket).

In response to the strong demand during the year-end peak travel season, SIA will operate supplementary services to Adelaide, Brisbane, Christchurch, Melbourne, Perth, and Sydney from 22 November 2023.

From 31 January 2024, additional frequencies will be mounted to Frankfurt until the end of the  Northern Winter operating season.

Scoot resumed flights to Jinan and Shenzhen in China in July 2023, and will serve Nanchang from August 2023.

From 29 October 2023, Scoot will inject additional frequencies to Chiang Mai, Davao, and Jeddah.

The low-cost carrier will also restructure its existing direct flights to Athens and Berlin, and operate thrice weekly Singapore Athens-Berlin services during the Northern Winter season.

Subject to regulatory approvals, SIA and Scoot will restructure their Bengaluru, Chennai and Hyderabad services from 29 October 2023. As part of this move, SIA will offer daily morning and evening services to Bengaluru. The SIA Group will also increase its services between Singapore and Chennai from 17-times weekly to 21-times weekly, with Scoot commencing daily operations to the city after SIA transfers some of its Chennai services to the low-cost carrier from 5 November 2023. In addition, SIA will progressively increase its weekly service between Singapore and Hyderabad from seven times weekly to 12-times weekly, taking over Scoot’s daily services between the two cities.

The SIA Group’s capacity remains on track to reach an average of around 90% of pre-Covid (January 2020) levels by March 2024.

Strategic Initiatives

Work continues on the proposed merger of Air India and Vistara, which will result in SIA taking a 25.1% stake in the enlarged Air India Group when the transaction has been completed.

In May 2023, Garuda Indonesia and SIA agreed on plans for a route joint venture arrangement that would deepen the cooperation between the two carriers. The proposed route joint venture, subject to regulatory approvals, would potentially allow the coordination of schedules between Singapore and Indonesia, and explore new initiatives such as joint fare products, and cross participation of frequent flyer programmes.

Enhancing the Customer Experience

In February 2023, SIA became one of the first airlines to roll out complimentary unlimited in-flight Wi-Fi for all Business Class customers, as well as its PPS Club members and PPS Club supplementary card holders.

KrisFlyer members were given free three-hour and two-hour Wi-Fi plans when travelling in Premium Economy Class and Economy Class respectively.

This benefit was enhanced from 1 July 2023, to allow all KrisFlyer members travelling in Premium Economy Class and Economy Class access to complimentary unlimited in-flight Wi-Fi.

The enhanced Wi-Fi offering is available on 95% of SIA’s aircraft fleet except for seven Boeing 737-800s and across almost the entire SIA route network.

Outlook

The demand for air travel is expected to remain robust for all route regions through the summer peak, with forward passenger bookings closely tracking capacity injection across most markets over the next three months.

Competition is expected to intensify in the coming months as more capacity is injected into international routes.

Cargo demand is expected to remain soft in the near term due to inflation and weak economic conditions. As more airlines add passenger services, bellyhold capacity will continue to increase globally. Inventory overhang and the easing of supply chain constraints have also resulted in a modal shift towards sea freight. Higher competition, as well as softer cargo demand, may continue to exert downward pressure on cargo yields, particularly on key trade lanes.

All hedge positions that were contracted at lower Brent prices prior to Covid have matured as at end of the first quarter of FY2023/24. The remaining hedge positions from the second quarter of FY2023/24 onwards are at prices closer to prevailing market levels.

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