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Cheaper jet fuel lifts SIA's Q3FY16 bottom line
THE drop in jet fuel prices boosted Singapore Airlines' (SIA) bottom line for Q3FY16, up 35.7 per cent year on year to nearly S$275 million, even as revenue took a hit over softer yields.
Revenue for the quarter fell 3.9 per cent to S$3.94 billion on the back of weaker yields from both passenger and cargo operations. Passenger yields slid 4.6 per cent, while cargo yields tumbled 13.5 per cent, the group said in a release to Singapore Exchange on Thursday evening.
However, lower expenses - in line with jet fuel prices trending at a 12-year low - sent operating profit soaring. It nearly doubled from S$146.3 million a year ago to S$288 million in the quarter under review.
"The challenging operating environment is expected to persist, with travel demand remaining volatile, affected by economic forces and external events," said SIA.
The airline is also battling stiff competition from both full-service and low-cost carriers adding capacity into the market, especially in Southeast Asia. This will continue to put pressure on loads and yields, the group added.
Group expenditure fell to S$3.65 billion, or 7.6 per cent lower, on the back of a S$354 million reduction in net fuel costs. This was partially offset by the stronger greenback against the Singapore dollar and a hedging loss.
For the quarter under review, nearly 55 per cent of the group's fuel requirements had been hedged at US$96 per barrel. Stripping out fuel costs, expenditure actually rose 2.2 per cent as regional wing SilkAir and budget carrier Scoot added capacity to their individual networks.
The bottom line for Q3FY16 was also bolstered by S$53.3 million in gains from disposal of aircraft from the sale and leaseback of four Boeing 737-800s by SilkAir and SIA Cargo disposing of a parked B747-400 freighter. This was partially mitigated by a S$40.7 million jump in tax expenses to S$65.8 million as well as the absence of S$56.2 million in exception gains that were recorded in Q3FY15.
During the quarter, all carriers in the group except SIA Cargo turned in a better performance at the operating level.
The parent airline's operating profit surged from S$87 million to S$181 million, while SilkAir clocked a profit of S$33 million, up from S$18 million a year ago. In the case of the parent airline, the decline in revenue was more than offset by reduced expenses, which came on the back of a S$295 million plunge in net fuel costs.
Scoot turned in an operating profit of S$18 million, swinging into the black from a loss of S$17 million, while subsidiary Tiger Airways chalked up S$9 million, versus S$4 million previously. SIA launched a takeover offer for Tiger last year at a final price of 45 cents per share as it is seeking to delist and privatise the budget carrier.
Only SIA Cargo's operating profit took a dive, plummeting from S$17 million to S$2 million. Revenue declined S$36 million as overcapacity put pressure on yields, outpacing the drop in operating costs.
The group described the outlook for air cargo as "cautious" given overcapacity and weak demand growth, adding that SIA Cargo will continue to manage capacity to better match demand, while focusing on higher-yield product segments.
Earnings per share for the quarter clocked 23.6 Singapore cents, rising from 17.3 cents a year ago.
"Supported by promotional activities, advance passenger bookings for the January-March quarter are positively tracking seat capacity," SIA said. But it warned that while lower fuel prices could deliver more relief, 46.6 per cent of the group's fuel needs in the fourth quarter is hedged at US$90 per barrel. This could spell more hedging losses.
Cash and cash equivalents fell to S$4.34 billion, down from around S$5.19 billion a year ago.
The counter fell 10 cents to close at S$10.82 on Thursday.