SIA undertaking review after reporting big drop in full year profit

Singapore Airlines (SIA) has established a “transformation office” to conduct a review of the business after reporting a near halving of full year net profit for fiscal 2017.

The airline group posted net profit for the 12 months to March 31 2017 of S$441.9 million (A$427.1 million), down 48.1 per cent from S$851.8 million in the prior corresponding period.

The full year result was hurt by a fourth quarter loss of S$126 million, compared with net profit of S$234 million a year earlier.

“Intense competition arising from excess capacity in major markets, alongside geopolitical and economic uncertainty, continue to exert pressure on yields,” SIA said in its full year results released on the Singapore stock exchange on Thursday evening.

Singapore Airlines, and others, have battled the rapid international expansion of Chinese airlines and the ongoing rise of Middle East carriers offering long-haul to long-haul connections through their hubs, which have bitten into previously lucrative markets. And in Asia, low-cost carriers (LCC) have won passengers happy to pay lower fares for a no-frills product on short- and medium-haul routes.

As part of efforts to adapt to this new environment, SIA established Scoot to capture a slice of the growling low-cost long-haul market, while it recently took full control of short-haul LCC Tigerair Singapore. The two budget carriers are merging to operate under the Scoot brand from the second half of 2017.

Moreover, Singapore Airlines is embarking on a significant overhaul of its fleet through orders for Airbus A350-900s, A380s, Boeing 787-10s and 777-9Xs, while its regional wing SilkAir is replacing A320s with new 737-800s and the 737 MAXes.

SIA said the many strategic initiatives being implemented to address the structural changes in the industry were now showing positive results.

To that end, SIA said it had established a wide-ranging review of the airline group’s network, fleet, product and service, as well as organisational structure and processes as part of efforts to build on the strategic initiatives currently being implemented and achieve long-term sustainable growth.

“The review is aimed at identifying new revenue-generation opportunities and reshaping the business into one that continues to deliver high-quality products and services, though with a significantly improved cost base and higher levels of efficiency,” SIA said.

SIA said full year revenue across the airline group was down 2.4 per cent to S$14.87 billion.

A yet-to-be-painted A350-900 for Singapore Airlines seen at Airbus's headquarters in Toulouse on May 17 2017. (Jordan Chong)
A yet-to-be-painted A350-900 for Singapore Airlines seen at Airbus’s headquarters in Toulouse on May 17. (Jordan Chong)

Singapore Airlines was expected to take delivery of 13 aircraft in fiscal 2018 comprising 10 A350-900s and three A380s, with 12 of the 13 expected to be in service by the company’s end of financial year date of March 31 2018.

The airline confirmed it would return four of its A380s to lessors during fiscal 2018, which will be the first aircraft of the type to enter the second-hand market.

A further two A330-300s, two 777-200s and one 777-200ER were also slated for withdrawal.

“The addition of more modern, fuel-efficient aircraft with new-generation cabin products is enabling the Group to expand its network and enhance its competitiveness in both the full-service and low-cost market segments,” SIA said.

“With Scoot and Tiger Airways preparing to operate under the single Scoot brand, more synergies are expected within the budget segment, both operationally and strategically.”

Singapore Airlines, or what SIA calls the Parent Airline Company, suffered a 20.4 per cent drop in operating profit to S$386 million.

Load factors eased 0.6 of a percentage point to 79 per cent, while yields slipped 3.8 per cent and cost per available seat kilometre excluding fuel rose 3.6 per cent.

By contrast, the financial performance of SilkAir and Tigerair/Scoot improved in fiscal 2017.

SilkAir achieved an 11 per cent improvement in operating profit to S$101 million, while Budget Aviation Holdings (the umbrella company for Tigerair and Scoot) operating profit rose 60 per cent to S$67 million.

Comments

  1. deano says

    What are the differences between legacy carriers and low cost carriers ?

    Perhaps we should look for things other than
    29″ pitch seating on average 85% full flights
    Pay for baggage and meals

    The legacy carriers should look to the inefficiencies that LCCs have mastered
    Quick turnarounds
    More hours in the air
    Leaner admin
    Less booking costs through call centers and travel agents and rely more on the internet
    More self check in
    A mix of new and economical aircraft for a majority of services with a smaller fleet of cheap second hand or older aircraft as back up to the main fleet to cover breakdowns or booking peaks, basically standby aircraft or even for use over short sectors where the fuel cost is not so big a cost factor
    How about “Last Minute Walkups” or Standby fares to increase load factors

    But most importantly, like QF/Jetstar and VA/ Tiger 1 fleet, 1 brand
    Running a full service airline alongside a LCC airline must have many duplicated staffing, from management to ground handling. Add this to duplicated flights on sectors where you could easily cut down 5+5 flights per sector to perhaps 8 or 9 under a common brand
    Having a 3 class (Business, Economy, Budget) would be fairly simple to implement
    This could easily turn 80% load factors into 90+%

    There is so much that could be done, just needs someone at the top with vision

  2. Riplander says

    Their main issue is consistency. You pay a premium for Y or J and you end up in their old unfurnished Boeing 777-200s and B777-300s. Many airlines have upgraded their hard product and are competitive. SQ are better off getting rid of the old aircraft ASAP and getting the new aircraft in the popular routes. That being said, it’s good to see that they’re being proactive in undertaking a review early whilst they’re still making some profit, unlike other airlines who only react after achieving substantial loss.

  3. Lechuga says

    I’m fairly sure Singapore are replacing their A333s 772s with A350s and a couple 787-10s, their 773s won’t be too much longer they’re just waiting for the 779 to launch. Besides a couple of the near ones that’ll be refurbished.

  4. JR says

    I think Singapore Airlines has become a bit complacent over the last decade, particularly in Australia. They’ve been overshadowed by the Middle Eastern airlines to some extent. Fewer cities served directly in Europe doesn’t help, but they don’t seem to leverage their partners like Lufthansa as much as they could. They also charge too much for premium economy and way too much for business class.

  5. Simon says

    Who took the terrible photo? The standards of this magazine are dropping significantly. I am not the only one who is saying this too.

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