Strong passenger traffic growth drove improvements in RASK and revenue
Outlook for travel demand remains healthy in near term
Grounding of 737 MAX 8 fleet slows expansion
The SIA Group reported an operating profit of $200 million in the April-June
2019 quarter, $7 million or 3.6% higher compared to the same period last year. Growth
in Group revenue of $258 million outpaced the $251 million rise in expenditure.
Group revenue amounted to $4,102 million, a 6.7% gain year-on-year.
Flown revenue was up $226 million (+6.3%), with passenger flown revenue improving $271 million (+8.8%), led by traffic growth of 8.1%, on a 6.6% increase in capacity.
Despite the significant capacity injection, RASK (revenue per available seat-kilometre) improved 1.3%. Cargo flown revenue declined $45 million (-8.4%), as both cargo yield and cargo load factor fell by 4.2% and 2.7 percentage points respectively due to weak cargo demand amid trade uncertainties.
Expenditure for the Group increased $251 million (+6.9%) to $3,902 million.
Ex-fuel costs rose by $157 million (+6.1%), in line with the capacity increase. Net fuel cost rose $94 million, led by an increase in volume uplifted (+5.9% or $70 million) on capacity expansion, and a stronger US dollar (+$33 million). The Group continued to benefit from fuel hedging gains during the quarter.
Group net profit for the quarter was $111 million, down $29 million or 20.7% from last year. The reduction was largely attributable to a higher share of losses from associated companies (-$31 million), as an improvement in Vistara’s performance was offset by higher estimated losses from Virgin Australia [Note 2]. Net finance charges also increased (-$26 million) due to the recognition of interest expense arising from lease liabilities following the adoption of IFRS 16 Leases, and additional financing for fleet renewal and growth. These were partially alleviated by an improvement in Group operating profit (+$7 million), a higher share of profit from joint venture companies (+$9
million) and lower provision for taxation (+$8 million).
Operating profit for the Parent Airline Company increased $51 million to $232 million, as strong revenue growth outpaced higher expenditure. The year-on-year increase in revenue of $250 million was mainly attributable to robust growth in passenger flown revenue (+$258 million). The higher passenger flown revenue was driven by a 9.0% increase in passenger traffic (measured in revenue passengerkilometres). Passenger load factor rose 1.2 percentage points to 83.2%, the highest on record for the first quarter, notwithstanding the capacity growth of 7.4% (measured in
available seat-kilometres). RASK improved 2.4%, or 4.9% on a constant currency basis.
Expenditure was up $199 million (+6.8%). Ex-fuel costs increased $118 million (+5.8%), attributable largely to the growth in passenger capacity. Net fuel cost also rose, by $81 million (+9.2%), largely due to a higher volume uplifted (+6.2%) and a stronger US dollar.
SilkAir was significantly impacted by the grounding of its six 737 MAX 8 aircraft during the period. Measures have been taken to mitigate the effects, however, which contained the reduction in capacity to 1.6%. This capacity reduction, together with a 2.9% yield contraction, contributed to a $10 million decline in revenue. Passenger load
factor rose on the back of 2.4% traffic growth, driving a 1.3% improvement in unit revenues (RASK). Expenditure rose $6 million (+2.5%), primarily due to costs related to the MAX 8 grounding. Consequently, an operating loss of $16 million was recorded by SilkAir for the quarter, against a marginal profit of $0.2 million in the same period last
Scoot’s operating performance also reversed from last year’s operating profit of $1 million to a loss of $37 million this year. Scoot proactively reduced aircraft utilisation during the period to improve operational resilience, and has recorded improvements in its on time performance. As a result, capacity growth was restrained to 6.5%. This was matched by passenger traffic growth, resulting in an unchanged passenger load factor of 86.1%. Flown revenue grew by $14 million (+3.6%), lagging capacity growth, as RASK contracted by 2.1% on lower yields. Other operating revenue
declined by $10 million. Expenditure rose $42 million (+10.1%), arising from the expansion of Scoot’s fleet and operations, including higher net fuel cost (+7.9%).
Operating profit for SIA Engineering rose to $18 million, an increase of $8 million year-on-year. Revenue was flat against last year, as a $2 million revenue improvement in the airframe and line maintenance segment was offset by a decrease in the engine and component overhaul segment. Expenditure fell, mainly from a reduction in material costs.
To mitigate the disruption in services on SilkAir due to the grounding of the Boeing 737 MAX 8 fleet, the Parent Airline Company has been operating supplementary services to existing SilkAir destinations such as Kuala Lumpur, Yangon, and (from 1 July 2019) Phuket. SIA will also see the addition of four-times-weekly Seattle services during
the Northern Summer operating season (31 March 2019 to 26 October 2019). As at 30 June 2019, SIA served 63 destinations, including Singapore.
SilkAir completed the transfer of services to Scoot, for Trivandrum in India, Luang Prabang and Vientiane in Laos, and Changsha, Fuzhou, Kunming and Wuhan in China. Chiang Mai, Coimbatore and Visakhapatnam are on track for transfer in October 2019, subject to regulatory approvals. Including its inaugural services to Busan launched on 1 May 2019, SilkAir served 43 destinations as at 30 June 2019, including Singapore.
Scoot’s presence in China continues to expand with the commencement of its four new destinations transferred from SilkAir. Kota Bharu services were also launched on 2 July 2019, becoming Scoot’s seventh destination in Malaysia. Following a network review, services to Lucknow and Kalibo were discontinued, while Bengaluru and Shenzhen services were transferred to SIA and SilkAir, respectively. Scoot ended the quarter with 66 destinations, including Singapore.
As at 30 June 2019, the portfolio of airlines in the Group served 135 destinations in 37 countries and territories, including Singapore.
SIA’s cargo operations will continue to pursue charter opportunities and deploy capacity to match demand. The freighter network covers 19 cities, including Singapore.
Passenger bookings in the forward months are tracking closely against capacity growth, supported by premium cabin traffic to key markets. Air freight demand has softened amid ongoing trade disputes and uncertain global economic conditions. These headwinds also cloud the outlook for passenger demand over the longer term. The Group will actively capture revenue opportunities and exercise cost discipline to boost profitability in this challenging macroeconomic environment.
Fuel price volatility is expected to persist in the near term, but the Group’s strong hedge position will help to mitigate any spike in prices. For the second quarter of the financial year, the Group has hedged 79% of its fuel requirements in MOPS at a weighted average price of USD75. For the remainder of the financial year, the Group has
hedged 70% of its fuel requirements in MOPS and 5% in Brent at weighted average prices of USD76 and USD52 respectively [Note 3]. The Group will continue to enter into longerdated hedges extending to FY2024/25.
The grounding of the 737 MAX 8 fleet has disrupted the Group’s operations and rate of expansion. While the fleet remains out of service, the Group continues to take active measures to mitigate the effects of the grounding.
Significant progress has been made following two years of transformation efforts. The Group is pushing ahead in its third year of the programme with a continued focus to enhance products and services, to further strengthen revenue-generation capabilities, and to improve operational excellence and staff productivity, underpinned
by a strong drive towards digitalisation.
R1 Earnings per share (basic) is computed by dividing profit attributable to the Company by the weighted average number
of ordinary shares in issue less treasury shares.
R2 Earnings per share (diluted) is computed by dividing profit attributable to the Company by the weighted average
number of ordinary shares in issue less treasury shares, adjusted for the dilutive effect on the vesting of all outstanding
share-based incentive awards granted.
R3 The significant increase in asset and debt balances against 31 March 2019 is largely due to the adoption of IFRS 16.
Please refer to SGXNET announcement for more details. R4 Total debt : equity ratio is total debt divided by equity attributable to the Company. R5 Net asset value per share is computed by dividing equity attributable to the Company by the number of ordinary shares in issue less treasury shares.