Rising industry capacity exerting pressure on yields, says senior SIA executive

SINGAPORE Airlines (SIA) might not repeat FY2024’s spectacular increase in its earnings in the year ahead. The airline’s chief commercial officer has said that rising industry capacity from peers would continue to exert downward pressure on its passenger yields.

Lee Lik Hsin, asked at the group’s financial results briefing on Thursday (May 16) whether the 24 per cent improvement in its net profit could happen again in FY2025, did not give a direct answer.

Instead, he pointed to the fall in passenger yields in the past six months stemming from the additional capacity from peers. 

The group had, on Wednesday, posted earnings of S$2.7 billion and a revenue of S$19 billion – both record highs – for FY2024 to March, on the back of buoyant travel demand as North Asian markets fully reopened their borders. 

However, passenger yields at SIA and its low-cost carrier Scoot dipped 7.6 per cent for FY2024. The yield for the budget carrier fell more steeply, by 15.9 per cent, than that of the full-service airline parent, which dipped by 4.7 per cent.

As a result, Scoot posted a 20.3 per cent lower year-on-year operating profit at S$118.1 million for FY2024, and a steeper decline of 68.2 per cent for the second half of FY2024. The full-service carrier’s operating profit rose 1.3 per cent for the full year, but fell 13.1 per cent for the second half of FY2024.

SIA’s chief executive Goh Choon Phong, elaborating on the subsidiary’s decline in profit, said: “You know that Scoot’s operations are largely regional. Regional routes are the ones that see a greater injection of capacity, so you can expect there is greater competitive pressure.”

But the group is “well-positioned” for the future, Goh said, citing its strengths such as digital capabilities and industry partnerships.

In a note on Thursday, DBS Equity Research said: “Core net profits likely peaked in FY2024, due to margin erosion.”

Morningstar’s equity research director in Asia, Lorraine Tan, expects a more gradual decline in SIA’s profitability, as costs have largely normalised and should better match revenue in the future. “While the full-year fiscal 2024 results aligned with our estimates, the second-half revenue fell short, which was made up for by better-contained costs,” she said.

She expects SIA’s earnings to slide by an annual average of 11.7 per cent over the next five years as the industry normalises.

Meanwhile, demand for travel in FY2024 has been boosted by improvement in travel within North Asia, but the recovery has been uneven.

Lee said travel into China has recovered strongly, but traffic out of China has still not recovered to pre-pandemic levels.

The North Asian country was Singapore’s top tourist source market pre-pandemic. Although it reclaimed the pole position in recent months, the arrivals are not yet at the levels before the pandemic.

The load factor for the group’s routes into China has gone up with the implementation of the travel-without-visa arrangement between Singapore and China in February, although these flights have still not returned to pre-pandemic levels either. Lee declined to disclose the capacity for this market, but said that the group was adding flights to destinations such as Shanghai, Beijing and Guangzhou.  

He said the group expects to be able to operate published schedules amid disruptions in the supply of spare parts arising from supply-chain issues. Scoot recently axed some flights for this reason.

The group posted a 2.6 percentage point rise in passenger load factor to 88 per cent for FY2024. For the second half of the financial year alone, however, there was a marginal 0.1 percentage point slip to 87.3 per cent.

Load factor measures the percentage of available seating capacity filled by paying passengers.

Lee told The Business Times that corporate travel has not recovered to pre-pandemic levels, although the aviation industry has by and large recovered.

The group has managed to fill its seats with other travellers. Lee, asked whether its fourth-quarter results could partly be attributed to the concerts held in Singapore by American singer Taylor Swift or the British band Coldplay, replied: “Our objective is to fill our flights – no matter (whether) there’s a Taylor Swift concert or not. Had there not been (a concert), we would still have been able to fill our flights.”

SIA shares were 1.2 per cent or S$0.08 lower at S$6.73 at market close on Thursday.