Monday, 11 November 2019

$206 Million half year profits for Singapore Airlines.

Net profit for the second quarter rose 68 per cent to $94 million
Strong passenger traffic growth continues to support operating performance
Cargo demand remains weak amid trade uncertainties
Vistara accelerates expansion and commences international operations 

The SIA Group achieved a net profit of $206 million in the first half of this financial year, $10 million (+5.1%) higher than last year, the airline has reported.  It said revenue rose $418 million (+5.3%), primarily from strong growth in passenger flown revenue, partially offset by a reduction in cargo flown revenue, while higher expenditure (+$431 million or 5.8%) reflected enlarged operations. Accordingly, operating profit for the Group was $413 million, down $13 million or 3.1% compared to the same period last year.

 The Group recorded a reduction in share of losses from associated companies (+$36 million), mostly from Virgin Australia, and a higher share of profits from joint venture companies (+$19 million). These were offset by increased net finance charges (-$54 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 expansion. 

Passenger flown revenue for the Group was up $514 million (+8.2%), lifted by 7.6% growth in traffic. Load factor improved 1.0 percentage point to 84.6%, a record for the first-half, as uplift outpaced the increase in capacity (+6.4%). Notwithstanding the significant capacity expansion, RASK (revenue per available seat-kilometre) continues its upward trend, improving 1.3% to 7.7 cents for the first half, the highest since the commencement of the Group’s transformation programme. However, cargo flown revenue declined by $138 million (-12.5%) as a result of poorer yields (-6.3%) and lower loads carried (-6.5%). The performance deterioration in the cargo segment was mainly
due to an overall drop in airfreight demand amid US-China trade tensions and a slowdown in exports from key manufacturing countries in Europe and Asia. Industry overcapacity on key trade lanes weighed on yields.

 Expenditure for the Group increased $431 million (+5.8%) to $7,912 million, primarily due to non-fuel expenditure. Non-fuel costs were higher by $318 million (+6.1%), mainly attributable to an expansion in operations. Net fuel costs rose by $113 million (+5.1%) to $2,349 million, primarily contributed by an increase in fuel volume consumed (+4.8% or $119 million) on capacity growth.

Operating profit for the Parent Airline Company rose by $47 million (+11.2%) to $465 million on passenger revenue growth. Total revenue increased $406 million, driven by passenger flown revenue (+$481 million), on an 8.6% increase in passenger carriage (measured in revenue passenger-kilometres), against a capacity expansion of 7.4% (measured in available seat-kilometres). Passenger load factor rose 1.0 percentage point year-on-year to 84.6%, while RASK was up 2.4%. Higher nonscheduled services revenue (+$38 million) supported the revenue improvements as well.
However, lower cargo revenue (-$138 million) and an increase in expenditure of $359 million offset some of the gains. 

Ex-fuel costs were up $258 million (+6.3%), largely on higher staff costs and aircraft standing charges, below the growth in passenger capacity (+7.4%). Net fuel cost also increased $101 million (+5.5%), partly resulting from higher volume uplifted (+5.1%) and a stronger US dollar. 

SilkAir continues to be adversely affected by the global grounding of the Boeing 737 MAX 8 aircraft, clocking an operating deficit of $19 million for the period. Notwithstanding a reduction in capacity (-1.1%) from route transfers to Scoot and the withdrawal of the 737 MAX 8s from service, the carrier achieved passenger flown revenue growth of $4 million (+0.9%). Passenger load factor rose on the back of a 2.8% increase in traffic, driving a 1.2% improvement in RASK. However, this was negated by lower non-scheduled services revenue and incidental revenue, leading to a $6 million decline in operating revenue. Expenditure was up $10 million, partially attributable to 737 MAX 8 related costs, along with higher net fuel cost.

 Total revenue for Scoot improved $7 million, driven by passenger flown revenue growth of $29 million as capacity expansion (+5.6%) was matched by higher passenger traffic (+5.8%). However, passenger revenue improvements were tempered by weaker RASK (-2.1%) on lower yields, declines in cargo revenue (-$4 million or 13.0%) and other operating revenue (-$18 million). Expenditure rose $74 million (+8.5%), mainly a result of higher depreciation from a larger fleet. In addition, Scoot continued to proactively reduce aircraft utilisation during the period to improve operational resilience. As a result, the carrier recorded an operating loss of $77 million, a deterioration of $67
million year-on-year. 

 SIA Engineering posted an operating profit of $37 million, $16 million higher than last year. Revenue from the airframe and line maintenance segment increased $7 million but was partly offset by lower revenue from the engine and component segment, resulting in an overall increase in revenue of $4 million. Expenditure reduced by $12 million, largely due to lower subcontract and material costs, further contributing to the improvement in operating performance. 

Second Quarter 2019/20
 Group net profit for the second quarter rose $38 million (+67.9%) to $94 million, mainly attributable to improvement in the share of results from associates and joint ventures (+$78 million), partially offset by higher net finance charges (-$28 million) for the quarter.

 Operating profit for the second quarter contracted $20 million (-8.6%) to $213 million, as expenditure, increased $180 million (+4.7%), mainly from capacity injection, outweighing revenue growth of $160 million (+3.9%). Passenger revenue grew $244 million (+7.5%), while cargo revenue declined $93 million (-16.3%). Ex-fuel cost rose $160 million (+6.0%), following a 6.2% increase in capacity, while net fuel costs were $20 million (+1.7%) higher. 

Operating performance for the companies in the Group was mixed. The Parent Airline Company and SilkAir’s profitability were largely unchanged against last year. Operating profit for the Parent Airline Company was $233 million (-1.7%), as revenue and expenditure were higher by similar magnitudes. Revenue improvements were led by growth in uplift (+8.2%) but offset by weaker cargo revenue as well as higher net fuel and other expenditure. Similarly, SilkAir’s higher revenue, largely from traffic growth (+3.1%), was matched by an increase in expenditure partly contributed by the
737 MAX 8 grounding. Operating loss of $3 million was flat against last year.  Passenger revenue for Scoot was up $15 million, driven by a 5.0% increase in passenger carriage on capacity growth of 4.7%. However, this was offset by higher costs (+7.0%), including fuel. Consequently, the operating deficit was $39 million for the second quarter.

 SIA Engineering reported an improvement in operating profit (+$8 million) for the second quarter, mainly due to higher revenue from the airframe and line maintenance segment, lower subcontract costs and a favourable exchange variance, partly offset by lower revenue from the engine and component segment. 

During the quarter, the Parent Airline Company began operations of its inaugural Seattle services on 3 September 2019, it's fourth non-stop service to the US, following the successful launch of Newark flights a year ago. In addition, Busan services launched by SilkAir in May were taken over by SIA from 28 October 2019, boosting seat capacity to cater to growing demand. Seasonal services to Sapporo will also be operated from 30 November 2019 to 6 January 2020. As at 30 September 2019, SIA served 65 destinations, including Singapore.

 SilkAir continues to see network changes as part of the planned merger with SIA, completing the transfer of Chiang Mai, Coimbatore and Visakhapatnam operations to Scoot in October. It is also on track to transfer Kota Kinabalu in December 2019, subject to regulatory approvals. Conversely, SilkAir took over Kochi services from Scoot from 27 October 2019, adding four more services to its existing 10 non-stop flights a week. As of 30 September 2019, SilkAir served 43 destinations, including Singapore. 

 Following the commencement of Fuzhou and Kota Bharu services in July 2019, Scoot added two new destinations in India, Coimbatore and Visakhapatnam, to its network from 27 October 2019. Scoot also suspended services to Quanzhou and Male, along with adjusting Harbin flight frequency to a Northern Winter (October to March) only seasonal service, to better match demand and capacity. Seasonal frequency additions will also be made for Melbourne, Perth, Phuket and Sydney during the Northern Winter peak period. Scoot ended the quarter with 67 destinations, including Singapore.
 Overall, the portfolio of airlines in the Group served 137 passenger destinations in 37 countries and territories, including Singapore, as of 30 September 2019.

 Following the launch of Vistara’s first international route, to Singapore in August 2019, SIA and SilkAir signed an agreement with Vistara to expand codesharing to international destinations, subject to regulatory approvals. Vistara increased its fleet from 22 to 32 aircraft during the first half of the financial year and commenced international operations to Singapore, Dubai and Bangkok. Vistara is set to continue rapid fleet growth in the second half as it takes delivery of new A320neo and A321neo aircraft and inducts its first two widebody aircraft (787-9). As a result, it will almost double
its fleet size during the financial year. This will allow Vistara to quickly increase its domestic and international networks and, importantly, to commence medium to long haul international operations in 2020. 

 SIA’s cargo operations will continue to pursue charter opportunities and deploy capacity to match demand. The freighter network covers 19 cities, including Singapore. 

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