SIA’s FY16 net profit skyrockets 95% to $701.6m

Cheap fuel boosted yields.

Singapore Airlines’ (SIA) core profit after tax and minority interest (PATMI) skyrocketed 95% YoY to $701.6m in FY16. This is after stripping out exceptional non-operating items like dividends from investment, as well as refund of fines to SIA Cargo.

According to a report by OCBC, SIA’s revenue for the financial year dipped 2.2% to $15.2b on lower yields at parent airline and its cargo business. This was partially offset, though, by revenue growth from SilkAir and Scoot on capacity and carriage growth.

Meanwhile, net fuel cost for FY16 tumbled 18.9% to $4.5b despite a 41.3% plunge in average jet fuel price, as it was partly mitigated by a 107.4% jump in hedging loss.

OCBC notes that parent airline as well as SIA Cargo saw FY16 yield slide 5.4% and 11.6% respectively, mainly on excess capacity in the market. While SilkAir and Scoot embarked on capacity expansion in FY16, yields slipped 2.9% for SilkAir and was flat for Scoot.

“We believe SIA’s improving fuel hedges couldn't have come at a better time—a period of intense competition where weak yield environment is the result. In our view, the key factor is whether SIA’s declining unit cost from cheaper jet fuel is able to outpace the weak yields outlook,” asserts OCBC.

As SIA plans to take delivery of 13 new fuel-efficient A350-900s and returning five less fuel-efficient aircraft to lessors in FY17, more fuel costs savings are expected other than that from improved fuel hedges. However, full impact will only likely be see from FY18 onwards.

“Note that Scoot benefited from rapid expansion and delivery of the new B787s throughout FY16 recording a S$95m improvement in operating profit to S$28m. We also expect more meaningful impact in FY16 from SIA enhancing connectivity between Scoot and Tigerair network,” states OCBC.

“All said, we expect decline in costs driven mainly by cheaper fuel to mitigate the weak yields environment,” OCBC adds.