Q3 Profit Down 53% @ SIA

Persistently high jet fuel prices have adversely affected Singapore Airlines Group’s performance in Q3 2011.

In the third quarter of the 2011-12 financial year, the group turned in a net profit of $135 million, a drop of $153 million or 53% over the same quarter in the preceding year.

Group revenue improved $34 million (+1%) to $3,875 million on the back of marginal growth in passenger carriage, while group expenditure rose at a faster pace, increasing $386 million (+12%) to $3,718 million, led by higher fuel costs.

Expenditure on fuel grew by $375 million (+33%), as jet fuel prices increased 30% over the same period last year. Fuel accounted for 40% of group expenditure, up 7 percentage points year-on-year.

Consequently, group operating profit declined to $157 million, $352 million lower (-69%) than the year before.

The operating results of the main companies in the Group for the third quarter of the financial year are as follows:

- Parent Airline Company Operating profit of $137 million ($378 million profit in 2010)
- SIA Engineering Operating profit of $28 million ($34 million profit in 2010)
- SilkAir Operating profit of $32 million ($45 million profit in 2010)
- SIA Cargo Operating loss of $40 million ($48 million profit in 2010)

The operating profit of the Parent Airline Company fell $241 million (-64%) as higher fuel expenditure (+$316 million or 34%) weighed on its performance.

Ongoing initiatives in cost management and efficiency helped to keep other cost items in check, with passenger unit cost excluding fuel down by 9%.

April to December 2011

For the nine months to December 2011, the group posted a net profit of $374 million, a decline of $547 million (-59%) from the $921 million for the corresponding period in the previous year.

Group revenue was up $215 million (+2%) to $11,152 million, while group expenditure increased $1,029 million (+10%) to $10,861 million, principally on account of higher jet fuel prices.

Consequently, operating profit for the group fell $814 million (-74%) to $291 million.

Q3 2011-12 Operating Performance

The number of passengers carried by the Parent Airline Company in the third quarter of the financial year was 4.4 million, a year-on- year decrease of 0.3%.

Passenger carriage (in revenue passenger kilometres) was flat while capacity (in available seat-kilometres) grew 3.3%. Consequently, passenger load factor declined 2.5 percentage points to 77.2%. On the other hand, passenger breakeven load factor climbed 4.9 percentage points to 76.0%, as unit cost increased 7.0% while yields remained flat.

SilkAir’s passenger carriage increased 8.0% against 10.7% growth in capacity, resulting in a 2.0 percentage-point drop in passenger load factor to 78.8%.

Overall breakeven load factor was up 3.8 percentage points as unit cost increased at a faster pace (+11.7%) than the improvement in yields (+4.4%).

SIA Cargo’s freight carriage (in load tonne-kilometres) was up 0.1%, while cargo capacity (in capacity tonne-kilometres) rose 0.6%. As a result, cargo load factor dipped slightly by 0.3 percentage points to 64.7%. Cargo breakeven load factor however rose sharply by 8.0 percentage points to 69.2%, from a combination of higher unit cost (+10.1%) and weaker yields (-2.5%).

Fleet and Route Development

The Parent Airline Company returned three B777-300 aircraft during the quarter on expiry of their leases. As at 31 December 2011, Singapore Airlines’ operating fleet comprised 103 passenger aircraft – three B747-400s, 62 B777s, 19 A330-300s, 14 A380-800s and five A340-500s – with an average age of 6 years 5 months.

SIA Cargo operated a fleet of 13 B747-400 freighter aircraft as at 31 December 2011, while SilkAir’s operating fleet comprised 19 aircraft – 13 A320-200s and six A319-100s.

With the commencement of the Northern Winter schedule on 30 October 2011, additional services were introduced by the Parent Airline Company to growth areas, such as Osaka, Guangzhou, Mumbai and Beijing. Tokyo (Haneda) services, which saw frequency reduced in the aftermath of the Japan earthquake, were fully reinstated. Meanwhile, services to Kuwait were terminated and frequencies to Riyadh and Cairo were scaled back. In addition, frequencies to Istanbul, Dubai, Houston (via Moscow) and Taipei will be reduced.

During the quarter, SilkAir launched services to Changsha and Bandung. SIA Cargo commenced new freighter services to Frankfurt and Chongqing, but reduced services to Americas.

Outlook

SIA says forward bookings continue to show signs of weakness in the final quarter of the financial year, due to uncertainty in the global economy and the protracted Eurozone debt crisis. Similarly, the air cargo market remains weak as forward indicators such as Purchasing Manager Indices slide further alongside weak consumer demand in major developed economies. Passenger yields are expected to remain under pressure while cargo yields are expected to continue to decline.

As the price of jet fuel remains high and volatile, fuel costs continue to adversely impact the group's financial performance.

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