Singapore Airlines Third Quarter Operating Profit Up 13% to $330 Million

· Higher carriage and load factors for all passenger airlines
· Strong earnings for SIA Cargo as trade conditions continue to improve

GROUP FINANCIAL PERFORMANCE

Third Quarter 2017-18

The SIA Group reported an operating profit of $330 million in the third quarter of the 2017-18 financial year, $37 million (+12.6%) higher than last year.

Group revenue rose $230 million year-on-year to $4,077 million (+6.0%), with revenue improvements in all business segments. Passenger flown revenue was $127 million (+4.2%) higher, with traffic growth (+6.9%) outpacing the reduction in passenger yield (-3.1%). Cargo revenue was up $88 million on higher freight carriage (+4.4%) and yield (+12.1%). Engineering services registered revenue growth of $8 million (+7.9%), largely attributable to line maintenance, and aircraft and component overhaul activities.

Group expenditure increased $193 million to $3,747 million (+5.4%). Net fuel cost rose by $86 million (+9.2%) as average jet fuel prices were up 20.1%, partially offset by a hedging gain versus a loss last year (+$86 million). Ex-fuel costs were up $107 million (+4.1%), partly attributable to the enlarged operations of SilkAir and Scoot.

Third Quarter Operating Results of Main Companies

The operating results of the main companies in the Group for the third quarter of the financial year were as follows:

Operating profit for the Parent Airline Company rose by $4 million or 2.6% year-on-year. Total revenue increased $108 million, largely due to a $72 million (+2.9%) improvement in passenger flown revenue, attributable to 4.4% growth in passenger carriage (measured in revenue passenger-kilometres), partially offset by a 1.0% reduction in yield. Passenger load factor rose 2.6 percentage points year-on-year to 81.6%, on the back of a 1.0% increase in capacity (measured in available seat-kilometres). Expenditure was up $104 million (+3.9%), driven by net fuel cost, staff costs and handling charges.

Operating profit for SilkAir was down by $11 million compared with the same period last year, as higher expenditure outpaced revenue gains. Total revenue was $12 million higher (+4.5%), led by higher passenger carriage of 18.4%, partially offset by a 12.3% decline in yield. An enlarged operation (+12.9% in capacity) resulted in an expenditure increase of $23 million (+9.8%), mainly from higher net fuel cost, aircraft maintenance and overhaul costs, and handling charges. Passenger load factor rose 3.5 percentage points to 74.8%.

Scoot recorded a $14 million improvement in operating profit. Total revenue grew $47 million (+12.9%), as passenger carriage and yield rose by 13.5% and 1.7% respectively. Expenditure was $33 million higher (+9.7%), led by higher operating costs arising from capacity growth of 7.0%. Passenger load factor rose 5.0 percentage points to 87.0%.

Operating profit for SIA Cargo rose by $35 million to $88 million in the quarter (+66.0%). Revenue improved $88 million as freight carriage growth of 4.4% was further supported by a 12.1% improvement in cargo yield. Expenditure was up $53 million, partly due to a foreign exchange loss against a gain last year, higher staff costs, and higher depreciation from engine overhauls. Cargo load factor rose by 2.4 percentage points to 68.3%.

SIA Engineering posted an operating profit of $18 million, a contraction of $7 million year-on-year. The decline was mainly led by higher expenditure (+$6 million) due to foreign exchange losses versus gains recorded in the same period last year, partially mitigated by a decrease in subcontract services. Revenue was relatively flat (-$1 million).

Third Quarter Net Profit

The Group reported a net profit of $286 million for the October-December 2017 quarter, an increase of $109 million, or 61.6%, from the same period last year. The increase was attributable to a higher operating profit ($37 million), further lifted by the absence of write-down of the Tigerair brand and trademark made last year ($79 million), partially offset by a higher tax expense ($14 million) on improved profitability.

April to December 2017

Group operating profit for the nine months to December 2017 improved by $248 million to $843 million (+41.7%). Revenue grew by $631 million (+5.7%) on stronger passenger and cargo flown revenue, partially offset by higher expenditure (+$383 million or 3.6%).

The operating results of the main companies in the Group for the nine months of the financial year were as follows:

All major entities in the Group except SilkAir reported better operating results, led by the Parent Airline Company and SIA Cargo. SilkAir saw higher costs in categories such as fuel, handling, and aircraft maintenance and overhaul, a consequence of the 13.0% expansion in operations, which outstripped growth in revenue. This resulted in the $34 million deterioration in earnings.

Operating profit for the Parent Airline Company rose $139 million or 32.6% year-on-year. Operating revenue rose by $269 million, with passenger flown revenue contributing nearly half ($130 million) of the gains. Passenger traffic grew 3.8%, offset by a 1.9% reduction in passenger yield. Revenue was further supported by higher other incidental income [See Note 2]. Expenditure was $130 million higher, led largely by higher fuel and staff costs.

SIA Cargo reported an operating profit of $120 million, a $112 million increase compared to the same period last year. Revenue grew $210 million as freight carriage rose 5.5%, and cargo yield improved 8.9% on the back of stronger market conditions. Expenditure increased by $98 million, due in part to a foreign exchange loss against a gain last year, higher handling cost due to increased loads and higher staff costs.

April to December 2017 Net Profit

Group net profit rose $212 million or 42.5% to $711 million for the nine months ended December 2017, contributed largely by the improvement in operating profit.

FLEET DEVELOPMENT

The Parent Airline Company saw three A350-900s entering into service, two of which were delivered during the quarter. One new A380-800 with the latest cabin products was also received and deployed to Sydney, while two A380-800s were removed from service in preparation for lease return. In addition, one 777-200ER was taken out of service in preparation for sale. As at 31 December 2017, the operating fleet of the Parent Airline Company comprised 109 passenger aircraft (51 777s, 22 A330-300s, 16 A380-800s and 20 A350-900s), with an average age of 7 years and 6 months.

Three 737 MAX 8s were added to SilkAir’s fleet and began operations during the quarter. As at 31 December 2017, SilkAir operated 33 aircraft – 10 A320s, three A319s and 17 737-800s and three 737 MAX 8s – with an average age of 4 years and 7 months.

Scoot added one 787-8, fitted with crew rest bunks for long-haul services, during the quarter. Two A320s previously subleased to IndiGo were returned to Scoot. The operating fleet as at 31 December 2017 comprised 41 aircraft - 16 787s (10 787-8s and six 787-9s), 23 A320s and two A319s - with an average age of 4 years and 9 months.

SIA Cargo operated a fleet of seven 747-400 freighters as at 31 December 2017, unchanged from last quarter.

ROUTE DEVELOPMENT

Following the successful launch of the new A380 with all-new cabin products to Sydney, the Parent Airline Company will introduce the enhanced A380 to London and Hong Kong on selected services from 16 February 2018 and 18 February 2018 respectively. In the Northern Summer operating season (25 March 2018 to 27 October 2018), services to Cape Town via Johannesburg will be increased from the current four-times-weekly to a daily service to meet growing travel demand. Dusseldorf will be served four times a week, up from the current thrice-weekly frequency. Hanoi services will increase from seven to 10 flights a week, due to a partial transfer from SilkAir.

With effect from 1 May 2018, the existing four-times-weekly service to Canberra-Wellington will be de-linked. This will be substituted by a four-times-weekly Wellington to Singapore via Melbourne flight, and a daily circular routing service to Canberra through Sydney. The number of destinations in the network will remain at 62, across 32 countries and territories, including Singapore.

SilkAir took over Scoot’s five-times-weekly service to Yangon and transferred its Kuching and Palembang services to Scoot during the quarter. In January 2018, the 737 MAX 8 aircraft commenced services to Darwin and Cairns. SilkAir will transfer Langkawi, Pekanbaru and Kalibo flights to Scoot during the Northern Summer operating season. With these changes, SilkAir will fly to 49 destinations in 16 countries.

Scoot commenced flights to Kuching, Honolulu, Harbin and Palembang during the quarter, and launched services to Kuantan on 2 February 2018. The low-cost carrier plans to spread its wings to its second European and third long-haul destination, Berlin, Germany, on 20 June 2018. Along with the transfers from SilkAir and suspension of services to Jaipur from 12 March 2018, Scoot’s network will grow to 66 destinations across 18 countries and territories.

Overall, the portfolio of airlines in the Group will fly to 137 destinations across 37 countries and territories, including Singapore.

SIA Cargo will continue to pursue charter opportunities and deploy capacity to match demand. Currently, SIA Cargo’s freighter network covers 19 cities in 13 countries and territories, including Singapore.

OUTLOOK

Despite a stabilization in yields in recent months, pressure on yields remains as competitors mount significant capacity in key markets with aggressive pricing. These challenging market conditions have been exacerbated by recent fuel price movements.

Fuel prices have been trending higher and volatility is expected to persist in the months ahead, as the market continues to balance demand and supply. For the fourth quarter of the financial year, the Group has hedged 40.7% of its fuel requirements at a weighted average jet fuel price of USD65 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 Parent Airline Company will take delivery of the world’s first Boeing 787-10 aircraft in March 2018, with all-new medium-haul cabin products for regional deployment. The introduction of the new regional cabin products reaffirms the Group’s commitment to continuously enhance the premium travel experience for customers though product innovation and leadership.

The Group’s three-year transformation program is well on track, with initiatives already bearing fruit in terms of enhancement of customer experience, revenue generation and improvements in operational efficiency. New initiatives are being actively explored. Digital innovation is an important enabler of the transformation program, with significant investments being made to lift the Group’s digital capabilities.

Through the various key strategic initiatives and strength of the portfolio of airlines serving both full-service and low-cost market segments, the SIA Group is well positioned to meet the ongoing competitive challenges.