GROUP FINANCIAL PERFORMANCE First Quarter 2017-18
The SIA Group reported an operating profit of $281 million in the April- June 2017 quarter, $88 million or 45.6% higher compared with the same period last year.
Group revenue rose $206 million year-on-year to $3,864 million (+5.6%). Excluding one-off items in both financial years, Group revenue increased year-on-year by $184 million (+5.2%), and Group operating profit rose by $66 million from $42 million to $108 million.
Passenger flown revenue contributed $121 million (+4.3%) on increased traffic (+7.6%), outstripping the reduction in passenger yield (-3.1%). Cargo revenue was up $57 million on higher freight carriage (+6.9%), further supported by yield improvement of 4.8%. Other revenue was stable, as the absence of the adjustment upon up-front revenue recognition for unutilised tickets recorded in the last financial year ($151 million) was mitigated by revenue adjustments from the KrisFlyer programme ($115 million) [See Note 2] and further recognition of compensation for changes in aircraft delivery slots ($58 million).
Group expenditure increased $118 million to $3,583 million (+3.4%). Net fuel costs rose by $30 million (+3.4%), as a $115 million reduction in fuel hedging loss partially offset the $145 million increase in fuel cost before hedging, caused mainly by higher average jet fuel prices. Ex-fuel costs were up $88 million (+3.4%), partly attributable to the enlarged operations of SilkAir and Budget Aviation Holdings, the parent company of Scoot and Tiger Airways.
Group net profit for the quarter was $235 million, down $22 million (-8.6%) from last year. However, the deterioration was attributable to the absence of last year’s gain on SIA Engineering’s divestment of its 10.0% stake in Hong Kong Aero Engine Services Ltd (HAESL) and special dividends received from HAESL (-$178 million), partially offset by higher Group operating profit (+$88 million), and lower share of losses from associated companies (+$47 million).
First Quarter Operating Results of Main Companies
Operating profit for the Parent Airline Company rose $44 million or 22.3% year-on-year. Total revenue increased $71 million, mainly driven by a $62 million (+2.7%) improvement in passenger flown revenue. Other revenue was higher, supported by KrisFlyer revenue adjustments and compensation for changes in aircraft delivery slots, partially negated by the absence of the adjustment upon up-front revenue recognition on unutilised tickets made in the first quarter of last year. The stronger passenger flown revenue was attributable to 4.7% growth in passenger carriage (measured in revenue passenger-kilometres), partially offset by 1.9% yield contraction. Passenger load factor increased 4.2 percentage points to 80.0%, as capacity (measured in available seat-kilometres) fell by 0.8%. Expenditure was up $27 million (+1.0%) on higher net fuel cost, landing, parking and handling charges.
SilkAir reported a $20 million deterioration in operating performance compared with the same period last year. Total revenue was marginally higher (+$2 million or 0.8%), as growth in passenger carriage of 13.8% was largely offset by an 8.6% decline in yield. Expenditure, on the other hand, increased $22 million as the 11.6% expansion in operations led to higher operating costs such as maintenance and fuel costs. Passenger load factor rose 1.5 percentage points year-on-year to 71.6%.
Budget Aviation Holdings recorded an operating profit of $3 million, declining $6 million compared to the same period last year. Total revenue grew $49 million (+15.8%) from 18.2% growth in passenger carriage, but this was overtaken by a $55 million (+18.3%) increase in expenditure on the back of 16.5% capacity growth. Yield was 1.7% lower, while passenger load factor rose 1.2 percentage points to 84.0%.
SIA Cargo reported an operating profit of $6 million, reversing its loss of $34 million (+$40 million) in the same quarter last year. Revenue received a $57 million boost from freight carriage growth of 6.9%, further lifted by a 4.8% improvement in cargo yield. Expenditure was up $17 million, largely due to higher handling cost with carriage growth and higher aircraft maintenance and overhaul cost. Cargo load factor rose by 3.7 percentage points, as the increase in freight carriage outpaced capacity expansion of 0.9%.
SIA Engineering posted an operating profit of $18 million, turning around from a loss of $2 million in the same period last year. The improvement was led by lower expenditure, which fell by $19 million (-7.0%) mainly due to the absence of a profit sharing bonus related to HAESL’s divestment gain. Revenue was relatively flat (+$1 million).
During the April-June quarter, the Parent Airline Company put four more A350-900s into service. One A330-300 and one A380-800 were removed from service in preparation for lease return. As at 30 June 2017, the operating fleet of the Parent Airline Company comprised 108 passenger aircraft (53 777s, 22 A330-300s, 18 A380- 800s and 15 A350-900s), with an average age of 7 years and 7 months.
SilkAir’s fleet profile was unchanged during the quarter. As at 30 June 2017, SilkAir operated 30 aircraft – 10 A320s, three A319s and 17 737-800s – with an average age of 4 years and 6 months.
Budget Aviation Holdings added two 787-8s fitted with crew rest bunks for long-haul services during the quarter, which led to an operating fleet size of 37 aircraft - 14 787s (eight 787-8s and six 787-9s), 21 A320s and two A319s - with an average fleet age of 4 years and 5 months.
SIA Cargo operated a fleet of seven 747-400 freighters as at 30 June 2017.
The Parent Airline Company introduced five-times-weekly A350-900 services to Stockholm via Moscow on 30 May 2017. With this addition, the number of destinations in the network expanded to 62 across 32 countries, including Singapore.
During the Northern Winter operating season (29 October 2017 to 24 March 2018), flights to Paris will increase from seven to 10 times per week. Frequency to Adelaide, Christchurch and Sydney will be stepped up to cater to higher demand. Seasonal services to Sapporo will be operated from 2 December 2017 to 6 January 2018.
SilkAir will be launching thrice-weekly flights to Hiroshima on 30 October 2017. In addition, SilkAir will be transferring its four-times-weekly and thrice-weekly services to Kuching and Palembang to Scoot from 29 October 2017 and 23 November 2017 respectively. With these changes, SilkAir will fly to 52 destinations in 16 countries.
In addition to Scoot’s maiden European long-haul service to Athens on 20 June 2017, the airline plans to add five new destinations by the end of the financial year. Among them are Honolulu, its first long-haul service to the USA, as well as Harbin in Northeast China. The remaining new destinations are short-haul services to Kuantan, Kuching and Palembang. The addition of these destinations will grow its network to 66 destinations across 18 countries.
Taking into account the announced destinations and service transfers, the Group will fly to 137 destinations across 37 countries, including Singapore, by the end of the financial year.
SIA Cargo will continue to pursue charter opportunities and deploy capacity to match demand.
The business outlook for the airline industry remains challenging, as the uncertain global economic climate and geopolitical concerns, coupled with over- capacity in our key markets, continue to dampen yield performance.
Fuel prices are expected to remain volatile in the months ahead, as the global oil market continues to adjust to demand and supply conditions. For the second quarter of the financial year, the Group has hedged 41.9% of its fuel requirements in MOPS at a weighted average price of USD63 per barrel. Longer-dated Brent hedges with maturities extending to the financial year 2022-23 cover up to 47% of the Group’s projected annual fuel consumption, at average prices ranging from USD53 to USD59 per barrel.
The Group will continue to take delivery of modern and fuel-efficient aircraft to further expand its network and enhance its competitiveness in both the full- service and low-cost market segments.
With the completion of the Scoot-Tigerair integration under the Scoot brand name on 25 July 2017, there will be more expansion opportunities for the low- cost segment of the Group portfolio, as the merged entity’s strong Southeast Asia presence will help to generate connecting traffic with long-haul flights.
The Group’s transformation programme is also ongoing, to identify new opportunities for revenue generation, and to re-structure its cost base.