Singapore Airlines reports full year profit lift, highlights market challenges

written by australianaviation.com.au | May 18, 2015
AIRBUS A330 300 SINGAPORE AIRLINES BNE MAY13 RF 5K5A9765
A Singapore Airlines Airbus A330-300 at Brisbane Airport. (Rob Finlayson)

Singapore Airlines (SIA) has reported a small lift in full year net profit and says cost control and disciplined capacity management will be the focus for fiscal 2016 given the challenging market conditions and uncertain economic outlook.

The company reported net profit of S$367.9 million for the 12 months to March 31 2015, up 2.3 per cent from $359.5 million in the prior corresponding period.

Revenue declined 0.9 per cent to S$15.209 billion, SIA told the Singapore stock exchange in a regulatory filing on May 15.

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SIA said passenger numbers at its main Singapore Airlines unit was little changed in fiscal 2015, with the airline carrying 18.737 million passengers in the year compared with 18.628 million in fiscal 2014.

Meanwhile, capacity measured by available seat kilometres was down 0.4 per cent.

“Demand in key markets is soft, primarily on Americas and European routes,” SIA said.

“Competition remains intense as other airlines continue to inject capacity with aggressive pricing.

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“Depreciation of key revenue-generating currencies, such as the Australian Dollar, Japanese Yen and Euro, will place further pressure on yield and demand, while the stronger US Dollar will increase operating costs, year-on-year.”

Operating profit at the main Singapore Airlines unit rose 32.8 per cent to S$340 million in fiscal 2015 and was up 17 per cent to $41 million at SIA’s regional wing SilkAir.

There was also encouraging news on the cargo front, with the full year loss narrowing to S$22 million, compared with S$100 million in the prior year.

“Despite global air cargo demand showing early signs of recovery, cargo yields are expected to remain under pressure due to excess capacity in the market,” SIA said.

“SIA Cargo will continue to manage capacity prudently and actively pursue demand opportunities in special product segments which attract higher yields.”

However, SIA’s engineering division posted a $32 million fall in operating profit to S$84 million due to less work.

While lower oil prices have provided airlines around the world a boost to the bottom line, the benefits have been limited by existing hedging policies many had in place during the recent declines.

In SIA’s case, the company reported a S$263 million reduction in net fuel costs, while fuel costs before hedging declined S$899 million through a 15.4 per cent fall in the average jet fuel price and 1.6 per cent fall in fuel volumes.

“A S$549 million hedging loss was recorded during the year, compared to the hedging gain of S$87 million last year, for a swing of S$636 million,” SIA said.

“Cost savings from lower fuel prices in the current quarter may be limited due to the fuel hedges already locked in.”

SIA said the its jet fuel requirement for the three months to June 30 2015 had been 58.5 per cent hedged at a weighted average price of US$110 per barrel.

Meanwhile, the airline group was 40.9 per cent hedged in Singapore Jet Kerosene (MOPS) at US$106 per barrel and four per cent hedged in Brent at US$102 per barrel for the full fiscal 2016 financial year.

In terms of fleet, SIA said it expected to take delivery of its first Airbus A350-900 in fiscal 2016, alongside three A330-300s and two Boeing 777-300ERs. Meanwhile, four A330-300s, two 777-200s, one 777-300 and one 777-200ER were due to leave the fleet when their leases expire.

The airline said it expected to end fiscal 2016 with 106 aircraft, up one from the 105 in the fleet at March 31 2015. During the year, 11 of its 777-300ERs and entire fleet of 19 Airbus A380s were being retrofitted with premium economy, which is due to make its worldwide debut on August 9 on the Singapore-Sydney route.

Also, the upgrading of the 777-300ER’s business and first class cabins was continuing into fiscal 2016.

“Although these activities will add costs in the current financial year, as will the preparation for the entry into service of A350-900s in early 2016, the investments are expected to improve future performance,” SIA said.

SIA said “total planned capacity is expected to remain flat”.

“To meet the challenges ahead, the group will continue its disciplined approach in capacity deployment and cost management, while enhancing product offerings and leveraging the various airline subsidiaries to tap demand across a diverse range of travel segments,” SIA said.

“Supported by a strong balance sheet, the group is in a strong position to maintain its competitive edge through the many strategic initiatives that are in place.”

SilkAir was due to take five more Boeing 737-800 and retire two A320s and one A319 to end fiscal 2016 with 29 aircraft. The regional carrier, which begins service to Cairns at the end of May, was forecast to lift capacity 13 per cent in the current year.

And SIA’s wholly-owned long-haul, low-cost unit Scoot was expected to have 11 Boeing 787s, a combination of the 787-8 and 787-9, and retired its entire 777-200ER fleet by March 31 2016, with ASKs tipped to rise 30 per cent in the current year.

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