SIA's S$181.8m Q4 net profit surpasses expectations

Singapore

SINGAPORE Airlines (SIA) beat expectations to chalk up a net profit of S$181.8 million for the fourth quarter ended March 31, reversing from a loss of S$138.3 million a year ago as stronger passenger and cargo revenues acted as tailwinds.

The corresponding quarter in FY2016/2017 had been dragged down by SIA Cargo's S$132 million provision for competition-related fines.

Bloomberg data showed that the consensus was for the airline to report S$717.46 million in net profit for the full year ended March 31, 2018. At some S$893 million, SIA's full-year profit soundly surpassed this.

During the fourth quarter, revenue expanded 8.3 per cent year-on-year to some S$4.02 billion, while earnings per share clocked 15.4 Singapore cents, compared to a loss per share of 11.7 cents previously. While expenditure edged up 3.2 per cent to S$3.8 billion due to costlier fuel, operating profit was nonetheless significantly higher at S$214.5 million, versus S$27.6 million a year ago.

The board has recommended a final dividend of 30 Singapore cents per share to be paid out on Aug 15, nearly tripling from 11 Singapore cents per share previously.

While there are stronger advance passenger bookings for the coming months and yields continue to stabilise, competition remains in key markets, as do cost pressures, the airline group said.

Jet fuel prices have started to climb sharply, while rising interest rates could also add to headwinds, some analysts have warned.

At the operating level, all its business units were profitable in Q4. The parent airline swung into the black with an operating profit of S$137 million, versus a loss of S$41 million a year ago, buttressed by higher revenue. Traffic grew by 1.4 per cent and, unlike in previous quarters where they shrank, passenger yields improved by one per cent.

Buoyed by increased demand, SIA Cargo also erased losses to post a profit of S$28 million at the operating level, while yields jumped by 8.5 per cent.

However, the International Air Transport Association (Iata) has warned that growth in the global cargo sector has already started to show signs of a slowdown due to the end of the restocking cycle, during which businesses rapidly increased their inventory to meet high demand. Other headwinds include rising fuel prices, patchy economic growth and the trade conflict between the US and China.

Meanwhile, regional wing SilkAir saw its operating profit slump from S$27 million to S$3 million owing to higher operating costs such as fuel, handling charges as well as landing and parking costs. Its yields also contracted by 11.4 per cent.

Budget carrier Scoot reported a S$7 million rise in operating profit to S$29 million, while SIA Engineering's operating profit declined by S$4 million to S$20 million.

For the full year, the SIA group's net profit soared to S$892.9 million, up from S$360.4 million in the previous fiscal year. Revenue increased 6.3 per cent to S$15.81 billion on the back of higher revenue contributions from all its business segments, while its operating profit for the full year crossed the billion-dollar mark at over S$1.05 billion.

Group expenditure increased 3.5 per cent to S$14.75 billion as average jet fuel prices were up 18 per cent, but this was partly offset by a hedging gain.

SIA said: "Fuel prices have been trending higher, and volatility is expected to persist in the months ahead. The overall demand outlook for cargo remains moderately positive, but is subject to geopolitical uncertainties which may have implications on global trade."

The parent airline will add capacity of 5 per cent in FY18/19, including restarting non-stop flights to New York and Los Angeles using the ultra-long range version of the A350-900.

Keen competition from legacy and full-service carriers alike forced the airline group to kick off a three year transformation programme last year, which has since shown "good progress", SIA said. "The next two years of the programme will further build on initiatives around enhancements to the customer experience, revenue growth and improvements in operational efficiency." In particular, it plans to leverage digital innovation in its drive to return to its glory days.

Other airlines such as Hong Kong's Cathay Pacific have also embarked on transformation programmes as capacity injections and cheap fares from the Gulf and Chinese carriers have made the operating environment more challenging.

At the end of the financial year, SIA's cash and cash equivalents came to S$2.57 billion, sinking from S$3.38 billion a year ago.

The counter closed at S$11.14 on Thursday, up 14 Singapore cents, before the group released its results.