SIA's Q2 earnings plunge 43% to S$90.9m as Tiger bleeds

Singapore

HIT by losses from associate Tiger Airways, Singapore Airlines' (SIA) net profit for the second quarter of FY14/15 dived 43 per cent year on year to S$90.9 million.

However, operating profit for the quarter was boosted some 52 per cent to S$131.7 million as expenditure eased 1.1 per cent, partly due to lower fuel costs. Fuel costs before hedging declined S$115 million, slightly offset by a fuel hedging loss - versus a S$76 million hedging gain in Q2 FY13/14 - leaving fuel costs falling by 2.6 per cent overall.

Revenue was flattish at around S$3.91 billion while earnings per share dropped to 7.7 Singapore cents, down from 13.6 cents a year prior.

The carrier flagged that the operating environment remains challenging, fraught with economic uncertainties and geopolitical concerns. Sliding jet fuel prices - while offering some relief - could end up impacting travel demand as major economies slow down. "Demand is generally flat, and yields will remain under pressure amid intense competition from other airlines and promotional activities in weaker markets," said SIA.

Aggressive capacity expansion from rivals such as the Gulf carriers is causing yields to be sacrificed in order to fill seats. Passenger revenue was slightly higher during the quarter as an increase in passenger carriage was offset by a 0.9 per cent decline in yields. On the other hand, cargo yields were up 2.8 per cent despite cargo revenue slipping 0.5 per cent as capacity was scaled back.

On the cargo front, airfreight demand is set to continue the pick-up seen in recent months in the lead-up to the year-end holidays. At the same time, overcapacity in the market will continue to depress yields, the group warned.

For the quarter under review, share of losses from associated companies swelled to S$104 million - versus a profit of S$34.3 million - as beleaguered associate Tiger chalked up losses from the sale of its stake in cub Tigerair Australia to Virgin Australia as well as from subleasing excess aircraft. Tiger sank into the red with a Q2 loss of S$182.4 million, it announced last month.

Ahead of a proposed rights issue by the ailing Tiger, SIA is converting its perpetual convertible capital securities into new shares, which will lift its stake in Tiger up to 56 per cent from 40 per cent currently. Post-rights issue, SIA's stake could climb to around 71 per cent.

In Q2, exceptional items cost SIA S$10.4 million, as a 793.2 million won (S$943,000) refund in the appeal of an air cargo case in South Korea was offset by a US$9.2 million provision from the settlement in an anti-trust litigation case in the United States.

Meanwhile, the bottom line received a boost from higher surplus from the disposal of aircraft, spares and spare engines, which came to S$44.4 million in Q2 FY14/15, versus S$9.1 million in the corresponding quarter a year earlier. For the first half of the fiscal year, net profit was down 55.5 per cent to S$125.7 million, while revenue slipped 2 per cent to S$7.59 billion as the corresponding period last year had benefited from higher compensation from changes in aircraft delivery slots.

In H1 FY14/15, the parent airline's operating profit was marginally lower, edging 1.6 per cent to S$183 million as lower costs nearly helped to offset weaker revenue. At SIA Engineering, operating profit slumped 33.9 per cent to S$37 million owing to lower airframe and component overhaul revenue and higher expenses.

Battered by a 5 per cent drop in yields, regional wing SilkAir's operating profit plunged 77.3 per cent to S$5 million. South-east Asian carriers have been struggling with overcapacity in the market, which has been putting pressure on yields.

Meanwhile, SIA Cargo narrowed losses from S$71 million to S$34 million, thanks to better capacity management, pushing yields and load factors up 1.9 per cent and 0.2 percentage points respectively.

The group has declared a dividend of five Singapore cents per share, payable on Nov 27.

"With a strong balance sheet, the group is well positioned to meet the challenges ahead," SIA added.

Cash and cash equivalents at the end of Q2 stood at S$5.6 billion, up from S$5.04 billion a year earlier.

The counter closed at S$10.15 yesterday, up two cents.