SIA net profit down 20.42% to $111.1m in Q1

Losses from associated companies widened to $31m due to a drag from Virgin Australia.

The Singapore Airlines (SIA) Group’s net profit sank 20.42% YoY to $111.1m in Q1 2019, according to its financial statement.

The reduction was largely attributable to a higher share of losses from associated companies worth $31m, as an improvement in Vistara’s performance was offset by higher estimated losses from Virgin Australia. Net finance charges also increased (-$26m) 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.

Operating profit however was up 3.6% to $200m. Revenue rose 6.7% to $4.1b thanks to increases in flown revenue (up 6.3% to $226m) driven by passenger flown revenue being boosted by 8.1% traffic growth and 6.6% capacity growth.

Despite the significant capacity injection, revenue per available seat-kilometre (RASK)
grew 1.3%. Cargo flown revenue declined 8.4% to $45m, as both cargo yield and cargo load factor fell by 4.2% and 2.7ppt, respectively, due to weak cargo demand amidst trade uncertainties.

SIA Group’s expenditure rose by 6.9% to $3.9b, as ex-fuel costs grew 6.1% in line with the capacity increase. Net fuel cost rose $94m, led by an increase in volume uplifted (+5.9% or $70m) on capacity expansion, and a stronger US dollar ($33m).

Operating profit for the parent airline grew by $51m to $232m, as strong revenue growth outpaced higher expenditure. The increase in revenue of $250m was mainly attributable to robust growth in passenger flown revenue (+$258m). The higher passenger flown revenue was driven by a 9.0% increase in passenger traffic (measured in revenue passenger-kilometres).

Passenger load factor rose 1.2ppt 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.

SilkAir was significantly impacted by the grounding of its six 737 MAX 8 aircraft during the period, SIA Group noted. “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 $10m decline in revenue,” it added.

Passenger load factor rose on the back of 2.4% traffic growth, driving a 1.3% improvement in unit revenues (RASK). Expenditure rose $6m (+2.5%), primarily due to costs related to the MAX 8 grounding. Consequently, an operating loss of $16m was recorded by SilkAir for the quarter, against a marginal profit of $0.2m in the same period last year.

To mitigate the disruption in services on SilkAir due to the grounding of the Boeing 737 MAX 8 fleet, the parent airline 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.

Meanwhile, Scoot’s operating performance also reversed from last year’s operating profit of $1m to a loss of $37m this year. 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 $14m (+3.6%), lagging capacity growth, as RASK contracted by 2.1% on lower yields. Other operating revenue declined by $10m. Expenditure rose $42m (+10.1%), arising from the expansion of Scoot’s fleet and operations, including higher net fuel cost (+7.9%).

The operating profit for SIA Engineering rose to $18m. However, revenue was flat against last year, as a $2m 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.