SIA steadies flight, lifts bottom line

Singapore

AFTER recent turbulence, Singapore Airlines (SIA) got a lift from lower fuel prices in the fourth quarter, bolstering the bottom line which surged nearly 47 per cent.

The group chalked up a net profit of S$39.6 million for the fourth quarter ended March 31, 2015, up from S$27 million a year ago, in line with higher revenue, lower fuel costs and improved yields. Fuel is a major expense for carriers, accounting for roughly a third of SIA's operating expenses.

Revenue for the quarter rose 6.9 per cent to S$3.88 billion, while earnings per share came to 3.4 Singapore cents, up from 2.3 cents a year ago.

As analysts predicted, the group reported lower fuel costs for the quarter, as fuel costs fell from S$1.38 billion to S$1.22 billion (excluding now-subsidiary Tiger Airways). For the full year, fuel costs slumped S$899 million thanks to a 15 per cent slide in jet fuel prices from a year ago, which was partially offset by a hedging loss of S$549 million as it had locked in two thirds of its fuel needs at US$117/barrel.

But looking forward, the SIA group warned that existing fuel hedges could mean that cost savings from lower fuel may be limited for the current quarter. For April-June, SIA is currently 58.5 per cent hedged at US$110/bbl. Meanwhile for the full financial year ended March 31, 2016, it has hedged 40.9 per cent in Singapore Jet Kerosene at US$106/bbl and 4 per cent in Brent at US$102/bbl.

For the quarter, operating profit clocked S$91.9 million, reversing losses of S$60.3 million a year ago, while operating profit for the full financial year came to nearly S$410 million, surging about 58 per cent. Stripping out loss-making Tiger, which became a subsidiary in October last year, operating profit for FY2015 would have hit S$419 million.

A weaker share of results from joint ventures and associated companies and the absence of tax credits weighed down the bottom line, though, with net profit hitting S$367.9 million, up just 2.3 per cent. A Bloomberg poll of 17 analyst had projected a net income of S$418 million.

Revenue rose from S$15.24 billion to S$15.56 billion, buoyed by contributions from Tiger. Excluding Tiger, revenue would have been nearly flat at S$15.2 billion as passenger revenue increased slightly but cargo revenue fell slightly.

Despite the improved report card, the group highlighted that market conditions remain challenging given the uncertain economic outlook, with soft demand in key markets such as the Americas and Europe, and foreign exchange volatility putting pressure on yield and demand. Rivals, such as the Gulf carriers, also present stiff competition with capacity being injected into the market at cut-throat prices.

For the full year, the parent airline's operating profit improved nearly 33 per cent to S$340 million thanks to cheaper fuel, which was partially offset by higher costs arising from aircraft leasing.

Yields improved both for the fourth quarter and the full year, from 11.1 to 11.4 cents/pkm year on year and 11.1 to 11.2 cents/pkm respectively. And from August, SIA is re-introducing premium economy on aircraft such as the Airbus 380-800 and 777-300ER, which means an avenue for fatter margins. According to UOB Kay Hian analyst K Ajith, yields could be 20-30 per cent higher for premium economy vis-a-vis regular economy seats.

SIA Engineering's operating profit dropped some 28 per cent to S$84 million on the back of lower revenue as demand for heavy checks softened, while regional wing SilkAir's operating profit gained S$6 million to S$41 million due to stronger passenger carriage and better yield.

Meanwhile, on the cargo front, SIA Cargo narrowed its full-year operating loss from S$100 million to S$22 million, thanks to a slight recovery in air cargo demand and capacity management. Cargo load factor improved 0.8 percentage point, with yield largely flat and unit cost sliding 2.3 per cent year on year.

"Despite global air cargo demand showing early signs of recovery, cargo yields are expected to remain under pressure due to excess capacity in the market," added the group, which said it would keep a close eye on capacity.

The group has proposed a final dividend of 17 cents per share. In the corresponding quarter last year, SIA paid out a final dividend of 11 cents and a special dividend of 25 cents.

Shares of SIA closed at S$11.64 on Thursday, down three cents.