SIA Q3 profit surges on exceptional gains

Singapore

BOOSTED by exceptional gains, Singapore Airlines' fiscal third-quarter net profit roughly quadrupled to S$202.6 million from S$50.1 million for the corresponding quarter a year earlier.

Expectations of a big boost from lower fuel prices fell flat. During the quarter, the group suffered hedging losses of S$216 million vis-a-vis a hedging gain of S$48 million previously.

Even though jet fuel prices had eased some 20 per cent year-on-year in 3QFY14/15 as crude oil prices slumped, SIA had hedged about 65 per cent of its fuel needs at US$116/barrel until end-March 2015.

Operating profit for the quarter ended Dec 31, 2014 eased to S$146.3 million from S$151 million. Stripping out subsidiary Tiger Airways - which made an operating profit of S$4 million - the group's operating profit would have fallen further to S$143 million. This was below analysts' expectations which averaged S$169.4 million, according to a Reuters poll of five analysts.

In Q3, SIA chalked up exceptional gains of S$56.2 million - versus an exceptional loss of S$79.9 million a year ago - as the group recorded a S$119.8 million remeasurement gain from the consolidation of Tiger. SIA boosted its stake in the ailing budget carrier from 40 per cent to nearly 56 per cent during the quarter, making the budget carrier its subsidiary.

This gain was partially offset by an impairment loss of S$63.6 million from SIA Cargo's 16 per cent stake in China Cargo Airlines to fully write down its carrying value. Persistent excess capacity suggests prospects are unlikely for a rebound in the near-term for Shanghai-based China Cargo Airlines.

Group revenue for the quarter rose to S$4.09 billion, up from S$3.87 billion previously, as stronger yields contributed to higher passenger revenue. Cargo revenue declined marginally as capacity was scaled back, although load factor improved. Excluding Tiger, group revenue increased about one per cent year-on-year to S$3.91 billion.

Meanwhile, earnings per share for the quarter came to 17.3 Singapore cents, up from 4.3 cents previously.

During the quarter, expenditure - excluding Tiger - increased 1.3 per cent to S$3.77 billion, in part due to the substantial hedging losses.

Other contributions to higher costs included exchange losses from the stronger greenback as well as higher aircraft depreciation and lease rentals.

"While the decline in oil prices is generally positive for the airline industry, hedging and competition will limit the effect on the group's earnings," SIA warned in its financial statements, which was released after the market closed. "Moreover, falling oil prices may be a manifestation of a slowdown in global economic activity, which may ultimately have a negative effect on air travel demand."

Shares of profits of JV companies and associated companies totalled S$23.6 million, compared to losses of S$24.1 million previously.

One bright spot is that both the parent airline and regional wing SilkAir reported better yields, even as the group battles cut-throat competition from both full service and budget carriers. SIA's passenger yields climbed from 11.2 cents/revenue passenger-km to 11.5 cents/pkm, while SilkAir's yields rose from 13.1 cents/pkm to 14.1 cents/

pkm.

The parent airline's operating profit for the quarter slid 33.1 per cent to S$87 million as operating costs rose sharply thanks to exchange losses and higher aircraft standing charges.

SIA Engineering's operating profit was nearly flat at S$24 million amid lower demand for airframe and component overhaul works, which contributed to a weaker topline.

However, SilkAir's operating profit tripled from S$6 million to S$18 million as higher passeger carriage and stronger yield gave revenues a shot in the arm.

And SIA Cargo turned in its best result for a third quarter since FY10/11, driven by higher load factor even as yield suffered a slight dip from 33.4 cents/load tonne-km to 33.3 cents/ltk.

The airline, which this week commenced sales for its upcoming premium economy product, said advance passenger bookings for the January-March quarter are positive due to Chinese New Year. However, it expects yields to remain under pressure in weaker markets as it strives to fend off rivals in a competitive operating environment.

"Airfreight demand has seen a moderate recovery recently, but competitive pressure on yield is expected to continue due to excess capacity in the market," it added.

Shares in SIA closed at S$12.13 on Friday, down three cents.