Singapore Airlines Group cuts full-year net loss

APAS Aircraft Storage Alice Springs
Airlines like Singapore Airlines are bringing planes out of storage as traffic improves with the removal of some COVID restrictions. (PHOTO: Steve Strike/Outback Photographics) Singapore Airlines (SIA) Group carried 3.9 million passengers in FY2021/22, up six-fold from a year before, with international air travel recovering in the last six months as global border restrictions eased. The Group ramped up passenger capacity (measured in available seat-kilometres) in a calibrated manner, growing from 24 percent of pre-Covid levels in April 2021 to 51 percent by the end of FY2021/22 in March 2022.

Singapore’s launch and subsequent expansion of the Vaccinated Travel Lane (VTL) scheme was the game changer for the Group. It facilitated quarantine-free mass travel for the first time since the Covid-19 pandemic began, and significantly boosted the demand for flights to and through Singapore. By deploying capacity and increasing services in an agile manner, SIA and Scoot were among the first to launch flights for all VTL points. This allowed the carriers to capture the pent-up demand for air travel as it returned.

As a result, passenger flown revenue grew by $2,121 million (+309.6 percent) year-on-year to $2,806 million. This was on the back of a 614.9 percent growth in traffic (revenue-passenger kilometres), which outpaced the capacity expansion of 215.7 percent and resulted in the passenger load factor rising 16.8 percentage points to 30.1 percent. Cargo flown revenue reached a record $4,339 million (+$1,630 million or +60.2 percent), driven by strong demand amid continued capacity constraints for both sea freight and air freight. This led to a 44.5 percent increase in loads carried, and 10.8 percent rise in yields. Consequently, Group revenue rose $3,799 million (+99.6 percent) year-on-year to $7,615 million.

Group expenditure grew by $1,896 million (+30.0 percent) year-on-year to $8,225 million. This increase consisted of a $1,173 million increase (+115.5 percent) in net fuel costs, a $1,015 million increase (+19.9 percent) in non-fuel expenditure, and an offset of $292 million from the year-on-year impact of the fuel hedging ineffectiveness recorded last year, as well as fair value changes on fuel derivatives. Net fuel cost rose to $2,189 million, mainly on higher fuel prices (+$1,081 million) and an increase in volume uplifted (+$661 million), which was partially offset by a swing from a fuel hedging loss to a gain (-$553 million). The increase in non-fuel expenditure by 19.9 percent was well within the 215.7 percent increase in passenger capacity and the 50.1 percent increase in cargo capacity.

The SIA Group recorded an operating loss of $610 million, an improvement of $1,903 million (+75.7 percent) from the $2,513 million loss a year before.

Impairment charges for aircraft of $51 million were recorded for the year (-$1,683 million or -97.1 percent year-on-year). This was mainly due to impairment charges for two Boeing 737-800s deemed surplus to requirements, as well as a further write-down to three previously impaired 777-300ERs due to a change in aircraft trade-in plans. This follows a review of the Group’s network requirements, as well as the market values of the aircraft in its fleet in FY2021/22.

The Group posted a net loss of $962 million for the year, an improvement of $3,309 million (+77.5 percent). This was primarily driven by better operating performance (+$1,903 million) and lower non-cash impairment charges (+$1,894 million), and partially offset by a $532 million reduction in tax credit due to the lower net loss.

The Group recorded an operating cash surplus of $824 million for FY2021/22, an improvement of $3,195 million on the back of its stronger performance.

The Group recorded an operating profit of $10 million for the six months to 31 March 2022, compared to a $620 million operating loss in the first half (+$630 million). This came as borders reopened in almost all key markets, and as the rapid expansion of VTLs during the six months supported the demand for air travel.

Group revenue rose $1,961 million (+69.4 percent) half-on-half to $4,788 million. Passenger flown revenue increased by $1,300 million (+172.6 percent) to $2,053 million as passenger traffic grew 257.2 percent, outpacing the 46.2 percent expansion in capacity. As a result, passenger load factor improved 23.4 percentage points to 39.6 percent in the second half. Cargo flown revenue increased by $589 million (+31.4 percent) as the yields (+22.1 percent) and loads carried (+7.6 percent) were elevated by the strong cargo demand.

Group expenditure grew by $1,331 million (+38.6 percent) half-on-half to $4,778 million. This increase consisted of a $569 million increase (+70.2 percent) in net fuel costs, a $682 million increase (+25.1 percent) in non-fuel expenditure, and $80 million from the half-on-half impact of the fair value changes on fuel derivatives. Net fuel cost rose to $1,379 million, mainly on higher fuel prices (+$354 million) and an increase in volume uplifted (+$323 million), which was partially offset by higher fuel hedging gain (-$115 million). The increase in non-fuel expenditure by 25.1 percent corresponded with the 46.2 percent increase in passenger capacity and 21.7 percent increase in cargo capacity.

Group net loss was $125 million for the second half, an improvement of $712 million (+85.1 percent) from the first half. This was mainly attributable to the better operating performance (+$630 million) as well as an improvement in share of results of joint venture and associated companies (+$100 million), and partially offset by higher non-cash impairment charges (-$29 million). The Group has raised $22.4 billion in fresh liquidity since 1 April 2020 through various measures including proceeds from Rights issuances, bond issuances, secured financing, and aircraft sale-and-leaseback transactions.

SIA, like other carriers, has seen its cargo business grow, but bellyhold cargo is troubled because of the cut in passenger flights. (PHOTO: Singapore government)

As of 31 March 2022, the Group shareholders’ equity was $22.4 billion, an increase of $6.5 billion from 31 March 2021. Cash and bank balances saw an increase of $6.0 billion, rising to $13.8 billion primarily due to the proceeds from the Mandatory Convertible Bond issue in June 2021. Total debt balances increased by $1.4 billion to $15.7 billion, mainly due to the issuance of a seven-year US$600 million (or about S$810 million) bond in January 2022, as well as the increase in lease liabilities as a result of sale-and-leaseback activities. Consequently, the Group’s debt-equity ratio fell from 0.90 times to 0.70 times. In addition to the cash on hand, the Group retains access to $2.1 billion of committed lines of credit, all of which remain undrawn.

During the final quarter, SIA took delivery of one Airbus A350-900, which joined the operating fleet in January 2022. SIA also took delivery of three Boeing 737-8s, which will enter into service starting from June 2022. Scoot took delivery of three Airbus A321neo aircraft, which have since joined the operating fleet. As of 31 March 2022, SIA’s operating fleet comprised 123 passenger aircraft2 and seven freighters, while Scoot had 53 passenger aircraft3 in its operating fleet. With an average age of six years and three months, the Group operates one of the youngest and most fuel-efficient fleets in the airline industry4. This results in increased operating efficiencies, as well as significantly lower carbon emissions compared to the older generation aircraft that they replace in the Group fleet.

The Group progressively reinstated services to several destinations, and stepped-up frequencies on existing routes, as travel restrictions eased. Services resumed across key markets including Australia (Cairns, Darwin, and Gold Coast), South East Asia (Danang, Denpasar, and Surabaya), Amritsar in India, and Cape Town (via Johannesburg) in South Africa. SIA resumed non-stop A350-900 ULR services between Singapore and Newark, and began operating its flagship Airbus A380 to India (Delhi and Mumbai), and the United States of America (New York via Frankfurt). Services to Moscow and Shenzhen were suspended during the fourth quarter. Scoot introduced a new destination, Miri, to its network.

At the end of the financial year, the Group’s passenger network covered a total of 93 destinations5 in 36 countries and territories, up from 85 at the end of the third quarter. This compared to a pre-Covid network of 137 destinations5 in 37 countries and territories. SIA served 69 destinations5 and Scoot 43 destinations5. The Group’s cargo network comprised 100 destinations,5 up from 98 at the end of the prior quarter.

Based on current published schedules, the Group expects passenger capacity to reach 61 percent of pre-Covid levels for the first quarter of FY2022/23. As travel demand continues to recover, passenger capacity is expected to climb to around 67 percent of pre-Covid levels by the second quarter. The Group expects to serve over 70 percent of its pre-Covid destinations by the end of the second quarter.

The SIA Group is ready to ramp up operations and capture the returning demand for international air travel. Cabin crew recruitment has resumed after a two-year hiatus to replace staff who have left over the last two years. The Group will continue to make the necessary investment in our people to meet our growth plans. Aircraft utilisation can also be increased quickly to support network expansion.

Various marketing campaigns have been launched to encourage customers to take to the skies again. These include a global brand campaign, We Look Forward to Seeing You in the Air Again, which promises customers an enhanced travel experience with SIA. Time to Fly, SIA’s first online travel fair in Singapore, offered curated travel packages with 10 participating travel agents, serving all market segments. Scoot re-established partnerships with tourism boards across Australia and South East Asia, as well as the Singapore Tourism Board, to incentivise travel to and from Singapore. KrisFlyer, the SIA Group’s loyalty programme, relaunched its KrisFlyer Spontaneous Escapes monthly promotion after two years. This allows members to stretch the value of their miles and book last minute getaways to a variety of SIA destinations.

Deepening collaboration with like-minded airlines remains an integral part of the Group’s strategy. By strengthening separate partnerships with Garuda Indonesia and Malaysia Airlines, the airlines will offer more options for customers, as well as enhanced connectivity to drive tourism in South East Asia. The recent expansion of the codeshare agreement between United Airlines and SIA will enable customers to connect to even more destinations within both airlines’ network.

The footprint of SIA’s cargo business continues to grow with the signing of a crew and maintenance agreement with DHL Express for five Boeing 777 freighters. These freighters will sport a dual DHL-SIA livery, and be operated by SIA pilots on routes to the United States of America via points in North Asia from July 2022. SIA will also oversee the maintenance of these aircraft. Basing these freighters at Changi Airport will further reinforce Singapore’s position as a key air logistics hub. It will support the fast-growing e-commerce segment, and also provide a foundation to expand the partnership between SIA and DHL in the future.

SIA has also firmed up an order for seven Airbus A350F freighters to replace its fleet of Boeing 747-400Fs. Deliveries will begin in the fourth quarter of 2025, and SIA will be the first operator of this new-generation aircraft. The renewal of the freighter fleet reflects SIA’s continued investment in its key air cargo segment.

SIA, the Civil Aviation Authority of Singapore, and Temasek have embarked on a year-long study into the operational viability of sustainable aviation fuels in Singapore. Jet fuel that has been blended with neat sustainable aviation fuel will be uplifted on SIA and Scoot flights from the third quarter of 2022 as part of this pilot. Sustainable fuels are a key decarbonisation lever for airlines, and a critical pathway for the success of the Group’s commitment to achieve net zero carbon emissions by 2050.

In view of the significant losses incurred and the need to conserve cash, the Board is not proposing a final dividend for the financial year ended 31 March 2022.

Singapore further relaxed border restrictions in April 2022, removing the need for quarantine, as well as both pre-departure and on-arrival Covid-19 tests for fully vaccinated travellers. Key markets around the world have further eased travel restrictions, supporting a strong recovery in demand in air travel across all cabin classes. Forward sales, when measured as a percentage of the total number of seats available, in the next three months up to August 2022 are approaching pre-Covid-19 levels. The Group will closely monitor demand, remain nimble and alert to all opportunities that may arise, and adjust its capacity and services accordingly.

Cargo demand is expected to experience near-term volatility as a result of the Russia-Ukraine conflict, as well as the knock-on effects of pandemic controls in China on the global supply chain. Cargo yields, however, are likely to remain healthy due to the continued industry capacity crunch on key trade lanes.

Inflationary pressures, in particular on fuel prices, remain a concern. In comparison to the average jet fuel price of US$90.31 per barrel (before hedging) for FY2021/22, spot prices have moved up by more than 50 percent and were close to US$150 per barrel, as of early May. The Group will maintain appropriate cost discipline, even as operations expand in line with demand.

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