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Singapore Airlines' profit falls 43% - better than market expectations

Analysis

Singapore Airlines Group (SIA) has disclosed a net profit of SGD337 million for the third quarter (ended 31-Dec-08), down (just) 42.8% year-on-year, as Group revenue declined 2.6% and costs rose 5.7%.

Summary
  • SIA Group reports better-than-expected 42.8% reduction in net profit in third quarter ended 31-Dec-08;
  • Passenger yields rose 3.2%, but the days of growth in yield appear to be over;
  • SIA sees weak demand "for much of 2009".

SIA Group revenue and operating profit margin: 3QFY05 to 3QFY09 (financial year ended 31-Mar)

Group operating profit fell 47.1% to SGD357 million for the quarter.

Singapore Airlines operating profit and operating profit growth: 4QFY08 to 3QFY09 (financial year ended 31-Mar)

The Group operating profit result included the following major business unit performances:

  • Singapore Airlines: Operating profit of SGD314 million, -38.7% year-on-year;
  • SATS Group: Profit of SGD43 million, -7.7%;
  • SIA Engineering: Profit of SGD29 million, +53.9%;
  • SilkAir: Profit of SGD12 million, -17.2%;
  • SIA Cargo: Loss of SGD46 million (against a profit of SGD73 million previously).

The result was better than market expectations, given the downturn in travel during the period. Passenger numbers fell 4.2% in the third quarter.

Singapore Airlines passenger traffic growth and passenger capacity growth: 3QFY07 to 3QFY09 (financial year ended 31-Mar)

RPKs fell 1.2% and passenger load factor eased 2.8 ppts to 78.5%.

Singapore Airlines passenger number growth and passenger load factor growth: 3QFY07 to 3QFY09 (financial year ended 31-Mar)

Passenger yield edged up a surprising 3.2%, but the days of solid yield growth are clearly over. As unit costs continue to rise, the airline's break even passenger load factor rose 5.0 ppts to 72.7% in the third quarter.

Singapore Airlines yield (per RPK) growth and unit costs (per ASK) growth: 3QFY07 to 3QFY09 (financial year ended 31-Mar)

This compression is expected to intensify in the fourth quarter and the early stages of the next financial year, commencing 01-Apr-09.

Singapore Airlines passenger load factor and passenger breakeven load factor: 3QFY07to 3QFY09 (financial year ended 31-Mar)

Cargo remains a major concern. Tonnage dropped 12.8% in the third quarter and cargo yields fell 5.7%, despite a 2.9% reduction in cargo capacity.

Weak outlook

The outlook for the last quarter and the next financial year is challenging. SIA stated demand for air transportation is "expected to remain weak for much of 2009" and it would continue to monitor the patterns of demand "and make appropriate adjustments to flight schedules and capacity, while managing costs tightly". The airline may cut up to 300 services this quarter on underperforming routes.

SIA has hedged 44% of its fuel needs in the quarter ending March at an average jet fuel price of USD131 per barrel - which will continue to be a drag on earnings, given spot prices are now much lower.

The carrier did not disclose a full-year profit outlook. The airline's shares advanced 0.4% yesterday.

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