27-Jul-2010 1:26 PM

Singapore Airlines returns to profit in first quarter; expecting recovery to continue

Analysis

Singapore Airlines reported a net profit in the three months ended Jun-2010, reversing a year-earlier loss, as the global economic recovery boosted air travel. The carrier added that it expects the recovery to continue to underpin its business for the remainder of the year.

Summary

Singapore Airlines reported a net profit in the three months ended Jun-2010, reversing a year-earlier loss, as the global economic recovery boosted air travel.
The carrier reported an operating profit of USD184 million and a net profit of USD186 million, compared to losses in the previous corresponding period.
Singapore Airlines, Silk Air, SIA Cargo, and SIA Engineering all contributed to the profit, with operating profits of USD100 million, USD11 million, USD44 million, and USD26 million, respectively.
The carrier experienced a 21% increase in revenues, the largest quarter of revenue growth in over 13 quarters.
Passenger yields increased by 14.7% and cargo yields soared by 42.3% in the quarter.
The carrier expects the recovery in passenger carriage and yields to continue for the rest of 2010, although yields have not yet returned to pre-crisis levels.

SIA Group financial highlights for three months ended 30-Jun-2010

Currency: USD	1QFY2011	% Change
Revenue (mill)	2,546	+20.7%
Operating costs (mill)	2,362	+0.8%
Fuel (mill)	830.9	+10.1%
Labour (mill)	387.2	-14.8%
Landing, parking and overflying charges (mill)	108.3	+0.7%
Operating profit (mill)	184	^
Singapore Airlines (mill)	99.9	*
SIA Cargo (mill)	44.1	>
SIA Engineering (mill)	26.4	+200%
SilkAir (mill)	11.0	/
Net profit (loss) (mill)	185.5	\
Total assets (mill)	16,888	+2.2%
Total debt (mill)	974.6	-0.9%
Cash and cash equivalents (mill)	3,881	+19.0%
Passenger yield per RPM	8.60	+14.7%
Passenger unit costs per ASM (cents)	6.61	+4.7%
Traffic - passenger numbers (mill)	4.0	+5.5%
Passenger load factor (%)	78.4%	+6.8 ppts
Breakeven passenger load factor	76.9%	-7.4 ppts
Cargo yield (cents)	28.43	+42.3%
Cargo cost per ASK (cents)	17.19	+10.9%
Cargo traffic (tonnes)	281,300	+5.2%

The carrier reported a return to profitability at both the operating and net levels in the quarter, with an operating profit of USD184 million and a net profit of USD186 million, compared to losses of USD234 million and USD226 million in the previous corresponding period, and resulting in margins in the 7% range. While better than 1QFY2010 levels, these margins were still weaker than levels established in the corresponding quarters in 2008 and 2009.

Singapore Airlines Group operating profit margin and net profit margin: 1QFY2008 to 1QFY2011

Singapore Airlines, Silk Air, SIA Cargo and SIA Engineering all contributed to this profit, with operating profits of USD100 million, USD11 million, USD44 million and USD26 million, respectively. Each of these subsidiaries, with the exception of SIA Engineering, reported losses in 1QFY2010.

Singapore Airlines, Silk Air, SIA Cargo and SIA engineering operating profit: 1QFY2010 vs 1QFY2011

Strong revenue increase; notable reduction in labour costs

During the quarter, SIA reported a 21% increase in revenues to USD2.5 billion, for the largest quarter of revenue growth in over 13 quarters. This revenue increase aided the carrier in boosting its cash balance, with cash and cash equivalents increasing 19% in the period to USD3.9 billion.

Singapore Airlines Group revenue growth: 1QFY2008 to 1QFY2011

This double-digit revenue growth exceeded a 0.8% increase in operating costs to USD2.4 billion, with the carrier benefiting from a 15% reduction in its second largest expense item, labour costs, in the period. Fuel costs, however, increased 10% in the period.

Singapore Airlines Group top 5 costs in 1QFY2011

Passenger unit costs, meanwhile, increased 4.7% in the period, while cargo cost per ASK increased 10.9%.

Singapore Airlines yield growth and unit cost growth: 1QFY2008 to 1QFY2011

Recovery in yields but still not back to 2008 levels

In other positive developments, SIA reported a 14.7% increase in passenger yields (per RPM) in the quarter, to USD 8.60 cents, while cargo yields soared 42.3% (to USD 28.43 cents), for an overall yield improvement of 19.6%.

Singapore Airlines passenger yield growth (% change y-o-y): 1Q2003/04 to 1Q2010/11

Singapore Airlines cargo yield growth (% change y-o-y): 1Q2003/04 to 1Q2010/11

The carrier commented that advance bookings indicate that the year-on-year recovery in passenger carriage and yields evident in the quarter to June will "hold up for the rest of 2010". SIA added, "Similarly, leading indicators, as well as sentiment among shippers and forwarders, suggest that the recent resurgence in air freight may be sustained in the near term, although the rate of growth may abate."

While year-on-year comparisons to a weaker 2009 are favourable (passenger, cargo and overall yields slumped 17.7%, 33.0% and 20.8% in the previous corresponding period), yields are yet to return to pre-crisis levels, with passenger yields still down by 5.6% on 1QFY2009 levels, and cargo yields down 4.7%, for an overall yield reduction of 5.3%.

Rival Cathay Pacific is noting a similar experience.

Singapore Airlines passenger yield (SGD cents/pkm): 1Q2002/03 to 1Q2010/11

Singapore Airlines cargo yield (SGD cents/ltk): 1Q2002/03 to 1Q2010/11

Meanwhile, SIA's passenger load factors exceeded the breakeven load factor again in the quarter, by 1.5 ppts, as passenger load factors surged 6.8 ppts to 78.4% in the quarter, and the breakeven load actor slipped 7.4 ppts to 76.9%.

Singapore Airlines passenger breakeven load factor and passenger load factor: 1QFY2008 to 1QFY2011

Also in the quarter, the carrier handled 4.0 million passengers, a 5.5% year-on-year increase, despite the carrier not increasing capacity (ASKs) in the period, with 281,300 tonnes of cargo also handled in the three-month period, a 5.2% year-on-year increase.

As previously reported by CAPA, Singapore Airlines has been a shrinking force, the price of regained profitability, as the carrier focuses on improving its yield profile and load factor levels. See related article: Singapore Airlines' contraction strategy as load factors and yields dominate

Singapore Airlines returns to profit in first quarter; expecting recovery to continue

Strong revenue increase; notable reduction in labour costs

Recovery in yields but still not back to 2008 levels

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