Singapore Airlines’ first quarter profit down 82% to $45mn

High fuel costs caused fall in net profit despite posting 3% growth in group revenue at $3.58mn.

The Singapore Airlines Group’s performance for the first quarter of the 2011-12 financial year was impacted by high fuel costs, resulting in 82% drop in net profit attributable to equity holders to $45 million, compared to $253 million in the same quarter a year ago. 

Group revenue at $3,578 million grew 3% (+$112 million) on account of higher passenger carriage, despite weak travel demand to Japan over nuclear radiation concerns. 

Group expenditure however increased at a faster rate of 11% (+$352 million). Expenditure on fuel, excluding hedging, rose 38%, or $397 million, as average jet fuel prices jumped 46% year-on-year. This was partially offset by a $90 million year-on-year improvement in hedging on gains of $12 million this year versus losses of $78 million last year. 

With the year-on-year increase in fuel costs exceeding the improvement in revenue, the Group recorded an operating profit of $11 million for the first quarter, against the $251 million operating profit in same period of the previous financial year. 

The Parent Airline Company turned in an operating loss of $36 million in the first quarter, in contrast to the operating profit of $136 million in the same quarter of the previous financial year. High fuel costs before hedging led to operating expenditure rising by $298 million (+11%), outpacing the $126 million (+5%) improvement in revenue. Other cost items were well contained and unit cost excluding fuel was lower by 9%, as reported by SIA. 

The operating results of the main companies in the Group for the first quarter are as follows: 

• SIA Engineering Operating profit of $35 million ($36 million profit in 2010)
• SilkAir Operating profit of $21 million ($15 million profit in 2010)
• SIA Cargo Operating loss of $14 million ($60 million profit in 2010)

Fleet and route development
Singapore Airlines took delivery of one A380-800 and decommissioned three B747-400 aircraft in the April-June 2011 quarter. As at 30 June 2011, the operating fleet comprised 106 passenger aircraft – four B747-400s, sixty-six B777s, nineteen A330-300s, twelve A380-800s and five A340-500s – with an average age of 6 years and 4 months.
The Company has been adjusting capacity to match demand. Frequency on the Singapore-Los Angeles non-stop service was reduced, while capacity will be added to more popular destinations in Asia such as Hong Kong, Guangzhou, Taipei and Mumbai. The passenger capacity growth for the financial year is expected to be 5 per cent.

Outlook
The prevailing price of jet fuel of above US$130 per barrel is close to 50% higher year-on-year. At these levels, fuel cost now constitutes more than 40% of the Group’s total expenditure. With forward prices remaining high and volatile, high fuel cost will remain the biggest challenge for the Group in the coming months.
Advance bookings for travel in the next few months are almost flat compared to the same period last year. With the current economic uncertainties, significant challenges remain in the key markets of Europe and the United States.
In such an environment, the Company’s sound finances and low level of debt put it in a position of strength. Management will monitor business trends closely and respond appropriately.