Can SIA Fly Again?

Can SIA Fly Again?

Company Background:
Singapore Airlines Limited is engaged in passenger and cargo air transportation, engineering services, training of pilots, air charters and tour wholesaling and related activities. The Company has four segments that contribute to its operating revenue:
1. Airline operations
2. Engineering services
3. Cargo operations
4. Others

The SIA Group has more than 20 subsidiaries with all the experts, which include(but not limited to):
1. SilkAir (a wholly owned subsidiary)
2. Scoot (a wholly owned subsidiary)
3. TigerAir (a wholly owned subsidiary)
4. Singapore Airlines Cargo

SIA’s business model:

One strength of SIA group is their well diversified and targeted business. After the group took 56% ownership stake of Tiger Airways and become its parent company in October 2014, SIA accomplished their strategic portfolio. Subsidiaries include Silkair, Scoot air and Tigerair, all contribute to the revenue of SIA group. The well structured business model also plays an important role in passengers yield battle amid SIA group and their competitors.

Recent Events & News:
Singapore Airlines, financial result 2015/2016, find the full report here.

March 20, ‘SIA Cargo may make provision in current financial year due to fine’, refer to the news here.

March 17, ‘SIA, 10 other airlines hit with S$1.2 billion fine by EU regulators for taking part in cargo cartel’, see the content here.

March 15, ‘SIA’s load factor up 3.2 percentage points in February’, check the detail of performance here.

Performance Summary:
SIA group, the flag carrier based in Singapore, maintain their steady operating performance since 2012. In 2016, their net profit doubled, which is not really a result of better operation, but mainly because of decreasing fuel price and less loss in the activities from hedging on fuel. SIA preserves a stable balance sheet. The group gained high dividend on long-term investment, thus spent additional money in investing, plus less proceeds from different disposals and share insurance, SIA held lower amount of free cash in 2016. When compared to competitors, SIA keep the most stable performance. Under the circumstance that Cathay Pacific met loss this year, SIA managed to beat Cathay by profit margin, but threat from budget airline companies are still serious.

Financial Highlights:
1. Operating performance:

a) FY2016 performance:
Compared to the performance in 2015, SIA observed 2.1% drop in their revenue in 2016. Revenue was decreased in all four business segments. For flight carrier like SIA, the fuel cost will occupied large portion of the total operating expenditure. Thus, the $1052.7 reduction of fuel cost in 2016 was the main reason of 4% expenditure decline in the income statement.

News about the effect of lower fuel price on SIA’s net profit in the financial year of 2016: ‘SIA profits soar on lower fuel prices, one-off gains’, refer to the news here.

Meanwhile, profit of SIA doubled with the quantity of $851.8m in 2016, compared to the number of $406.7m in the last year. SIA has achieved outstanding result in profit in 2016. To find out the reason behind the sharp rise, formula of net profit is provided here:

Net profit = Operating profit + Other Profit – Other Expenditures

Thus, in the case of SIA, the growth of profit was a consolidate contribution from:
1. Lower fuel expenditures due to oil price decline
2. Higher operating profit of $604m, which arose from less ”Fuel hedging loss recognised in ‘Fuel costs’”
3. Higher other profit such as Dividends from long-term investments
4. Lower other expenditures such as Impairment of aircraft

However, it turned out that the significant progress in net profit is not really a result of improved operation.

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