SIA Group flies to $ 1.09 b profit in 2010/11

Says fuel costs remain greatest challenge on to the future

The SIA Group said last week it achieved a net profit attributable to equity holders of $1,092 million for the 2010-11 financial year, an increase of $876 million from the $216 million profit last financial year, which was adversely affected by the global financial crisis.

The 2010-11 financial year result included an exceptional item of $202 million in respect of provision for fines imposed on SIA Cargo.

Group revenue grew $1,817 million (+14%) to $14,525 million as both carriage and yields recovered from depressed levels last financial year. This revenue growth was achieved in a year punctuated by disruptions ranging from volcanic ash in Europe, snowstorms in Europe and USA, floods in Australia, and earthquakes in New Zealand and Japan.

On the cost side, Group expenditure rose $609 million (+5%) to $13,254 million. Fuel costs excluding hedging – the biggest expense item of the Group – increased $877 million (+24%), as average jet fuel prices surged 26% this financial year. This was partially offset by a smaller loss from fuel hedging ($62 million versus $558 million).

Consequently, Group operating profit improved from $63 million last financial year to $1,271 million for the financial year ended 31 March 2011.

The Parent Airline Company earned an operating profit of $851 million in the financial year, representing a turnaround from the operating loss of $39 million the previous financial year. All the major companies in the Group recorded improved operating results.

Fourth Quarter

2010-11

Group revenue at $3,587 million improved by 8% (+$251 million) compared to the corresponding period last financial year, supported by the continued recovery in yields.

However, this was outpaced by increase in Group expenditure of 11% (+$326 million), mainly from higher fuel cost (+$300 million) as jet fuel prices spiked 34% year-on-year. This was partially offset by hedging gains of $38 million (against hedging losses of $19 million).

As a result, Group operating profit for the quarter fell $75 million (-31%) from the same quarter last financial year to $166 million.

FLEET AND ROUTE DEVELOPMENT

During the January-March quarter, Singapore Airlines decommissioned one B747-400 aircraft. As at 31 March 2011, the operating fleet comprised 108 passenger aircraft – seven B747-400s, sixty-six B777s, nineteen A330-300s, eleven A380-800s and five A340-500s – with an average age of 6 years and 3 months.

A new three-times-weekly service to Sao Paulo via Barcelona was launched on 28 March 2011, marking the addition of South America as the sixth continent in Singapore Airlines’ route network. Flight frequencies to popular destinations, including Hong Kong, Guangzhou, Taipei and Male, have been increased since the start of Northern Summer. Conversely, the Singapore-Los Angeles non-stop service has been reduced from seven to five flights per week.

In the year to March 2012, the Company expects to take delivery of eight A380-800s and decommission five B777s and all seven B747-400s. The net decrease of four aircraft will bring the operating fleet to a total of 104 aircraft by March 2012. The reduction in fleet size will be more than offset by increased utilisation to produce passenger capacity growth of 6 per cent in available seat-kilometres for the 2011-12 financial year.

On 6 April 2011, SIA Engineering Company and Panasonic Avionics Corporation together formed a joint venture in Singapore – Panasonic Avionics Services Singapore. SIA Engineering Company injected a paid-up capital of USD2.125 million, equivalent to a shareholding of 42.5%.

On 15 April 2011, Singapore Airlines and SilkAir announced an increase of the fuel surcharge on tickets issued on or after 21 April 2011. The adjustments will offer only partial relief of higher operating costs arising from the recent jump in jet fuel prices.

On 25 April 2011, SIA Cargo injected $63.5 million in cash into China Cargo Airlines Ltd (CK) for a 16% share of the new company. Great Wall Airline’s (GWL) assets and liabilities will be purchased by CK and GWL will accordingly be liquidated. The proceeds of the liquidation will be returned to shareholders of GWL.

The $202 million provision comprised the plea offer as agreed with the United States Department of Justice Antitrust Division (USD48 million or SGD62.5 million), the fine imposed by the European Commission (EUR74.8 million or SGD135.7 million), and the fine imposed by the South Korean Fair Trade Commission (KRW3.1 billion or SGD3.6 million). SIA Cargo has paid the fines as required by law and has filed appeals against these fines imposed by the European Commission and the South Korean Fair Trade Commission.

OUTLOOK

The year ahead is expected to be challenging for the airline industry.

The uncertain global economic outlook is manifested by the recent Standard & Poor downgrade of the US debt outlook from stable to negative, and continual fears of a sovereign debt crisis in Europe. In addition, the concerns over nuclear radiation in Japan following the March 11 earthquake continue to impact air traffic to and from Japan. These effects are reflected in forward bookings, indicating near term weakness in load factors.

The average price of jet fuel has surged by more than 25% between January 2011 and April 2011, to USD140 per barrel, the highest level since the last peak at USD174 per barrel recorded in July 2008. While there has been some respite in the past week, jet fuel prices are likely to remain high and volatile in the near term.

The twin challenges of near term weakness in load factors and high fuel prices will adversely affect operating performance of airlines. The Company remains committed to staying lean and competitive. The Company will be vigilant in cost management and closely monitor patterns of demand and adjust capacity accordingly.