Singapore Airlines (SIA) has cited the impact of its transformation program amid passenger and cargo growth in helping deliver a hefty lift in full year profit in fiscal 2018.
Net profit for the 12 months to March 31 2018 came in at S$893 million, more than double the S$360 million in the prior corresponding period.
Meanwhile, operating profit, which excludes one-off items, rose 70 per cent to S$1.057 billion, SIA said in a regulatory filing to the Singapore stock exchange on May 17.
All of SIA’s operating businesses, with the exception of regional wing Silkair, achieved an improvement in operating profit in fiscal 2018, compared with the prior year.
The Singapore Airlines business, also known as the parent airline, achieved an operating profit of S$703 million, up from S$386 million in the prior corresponding period.
The company said Singapore Airlines’ results were boosted by a new revenue management system, new airfare pricing structure and centralised pricing unit. Costs were also kept in check through fuel saving and waste reduction initiatives.
The strong rebound in the cargo market also helped lift SIA Cargo to a S$148 million operating profit for the period, compared with S$3 million in the prior year.
And SIA Engineering achieved a 5.6 per cent improvement in operating profit to S$76 million.
However, Silkair operating profit more than halved to S$43 million, from S$101 million previously, as higher fuel costs outpaced revenue growth.
SIA said its three-year transformation program, which was established in 2017 to conduct a wide-ranging review of the airline group’s network, fleet, product and service, as well as organisational structure and processes, was “showing good progress and yielding early results”
“The next two years of the programme will further build on initiatives around enhancements to the customer experience, revenue growth and improvements in operational efficiency,” SIA said in a statement.
SIA chief executive Goh Choon Phong said during the company’s results briefing in Singapore on May 18 more than 90 initiatives have been started across the organisation as part of the transformation program, which was focused on three key themes.
“One is to establish ourselves as the undisputed market leader with sustainable financial performance,” Goh said.
“The other aspect is to have a vibrant innovation culture. As you can see, all those initiatives, about digital and all that, of course, that ultimately will lead to initiatives that will help us address various business issues.
“And thirdly also to inspire passion in our people.”
Another outcome of its transformation office was announced on May 18, when SIA said it would merge the operations of its regional wing Silkair with the parent airline. Silkair would also get a cabin upgrade with lie-flat seats in business class and seat-back in-flight entertainment for every seat.
The move is similar to the bringing together of Scoot and Tigerair Singapore under the Scoot brand to target the low-fares end of the market.
Singapore Airlines is Australia’s second-largest foreign carrier with figures from the Bureau of Infrastructure, Transport and Regional Economics (BITRE) showing the airline carried 8.1 per cent of all international passengers into and out of the country in the first two months of calendar 2018.
The SIA airline group’s market share is even greater when the routes of its regional wing Silkair (to Cairns and Darwin) and low-cost-carrier Scoot (Gold Coast, Melbourne, Perth and Sydney) are included.
Like many others, SIA has battled the rapid international expansion of Chinese airlines and the ongoing rise of Middle Eastern carriers offering long-haul to long-haul connections through their hubs, which have bitten into markets such as the ultra-competitive Kangaroo route from Australia to Europe.
And at the budget end, Asian-based low-cost carriers have won passengers happy to pay lower fares for a no-frills product on short- and medium-haul routes.
In addition to its transformation program, SIA’s response to the changing market dynamics has been to invest in new ventures such as India-based carrier Vistara and to forge new partnerships.
And it has been investing in a new fleet, with scores of Boeing 787-10s and Airbus A350-900s due for delivery in the period ahead, as well as a reconfiguration program for its A380s that will add extra seats and upgraded cabin products.
SIA chief financial officer Stephen Barnes said the arrival of Boeing 787-10 and Airbus A350-900s would allow the parent airline to grow overall capacity as as these next-generation aircraft would replace older smaller-gauge airframes in the fleet such as the A330-300 and 777-200s.
Further, the A350-900ULR due to join the fleet towards the end of the year to resume nonstop flights from Singapore to New York and Los Angeles would also represent capacity growth, while refurbished A380s have more seats than previous cabin configurations for the type.
“With the growth in the fleet, we’ll also see growth in the ability to grow our overall capacity,” Barnes said.
“SIA itself has been essentially flat for five years in terms of capacity. This year, the expectation, the plan, is that we will grow at nearly 5 per cent.”
“The ultra-long-range services are going to contribute a significant share of that increase. The 787s carry more seats than the aircraft that they are replacing. Similarly, the five A380s in the new configuration have more seats than the aircraft that they are replacing, so this increased density contributes another significant chunk.”
In terms of the outlook, SIA sounded a note of caution about market conditions.
“Despite stronger advance passenger bookings for the coming months and a continued stabilisation in yields, intense competition in key operating markets and cost pressures remain,” SIA said.
“Fuel prices have been trending higher and volatility is expected to persist in the months ahead. The overall demand outlook for cargo remains moderately positive, but is subject to geopolitical uncertainties which may have implications on global trade.”