SIA reports lower quarterly profit as yields fall and fuel costs rise

SINGAPORE – Lower yields, costlier fuel and increasing competition conspired to send first-quarter earnings sliding at Singapore Airlines (SIA).

Net profit for the three months to June 30 dived 38.4 per cent to $452 million, from $734 million a year earlier, while revenue edged up 5 per cent to $4.71 billion.

Total expenditure was 14 per cent higher at $4.25 billion.

Net fuel cost increased 30.1 per cent to $1.37 billion, mainly due to higher volumes uplifted, price increases and a lower fuel hedging gain. The 7.7 per cent rise in non-fuel expenditure to $2.88 billion was less than the 11.6 per cent increase in overall passenger and cargo capacity.

In addition to the weaker operating performance, the bottom line was also weighed down by a reduction in net interest income, a lower surplus on disposal of aircraft, spares and spare engines, and a lower share of profits of associated companies. But this decline was partially mitigated by a fall in tax expense.

Group shareholder equity decreased by $1.3 billion to $15.1 billion during the quarter, largely due to the redemption of all remaining Mandatory Convertible Bonds (MCBs). Total debt balances remained almost flat at $13.3 billion.

As a result, the group’s debt-equity ratio edged up from 0.82 times to 0.89.

Cash and bank balances fell by $1.2 billion to $10.1 billion, mainly due to the redemption of all remaining MCBs. SIA paid out the principal amount of $1.74 billion on June 24, which in turn was partially mitigated by the $1.2 billion of net cash generated from operations, including proceeds from forward sales.

In addition to cash on hand, the group has access to $3.3 billion of committed lines of credit, all of which remain untapped.

Passenger-flown revenue rose by 4.1 per cent in the quarter, supported by a 13.8 per cent increase in passengers carried, despite a 4.6 per cent decline in yields.

Passenger traffic rose 9.7 per cent year on year against a 12.2 per cent growth in capacity, resulting in a drop of 2 percentage points in the group passenger load factor to 86.9 per cent.

Cargo-flown revenue was marginally lower than a year before, declining 0.2 per cent to $541 million. But overall air cargo demand remained buoyant, supported by strong e-commerce flows and increased demand for air freight driven by the Red Sea crisis and port congestion.

This helped to raise the cargo load factor to 57.7 per cent and mitigate the impact from a 19.1 per cent decline in cargo yields due to increased belly-hold cargo capacity.

The company said the airline industry continues to contend with heightened competition, supply chain constraints, inflationary cost pressures and geopolitical uncertainties. Nevertheless, travel demand is expected to stay healthy in the coming months, though passenger yields are forecast to stay below the previous year’s levels as more capacity enters the market, particularly in the Asia-Pacific region.

The firm said it “remains well positioned to navigate these headwinds, supported by its strong balance sheet and robust digital capabilities, as well as its firm commitment to maintaining cost discipline”.

It also noted that it would continue to pursue deeper commercial partnerships with like-minded carriers, particularly in fast-growing markets within the Asia-Pacific region, to enhance connectivity and widen travel options to customers.

It is also pushing a multi-hub strategy.

A key component of this included the November 2022 agreement for SIA and Tata Sons to merge Air India and Vistara. The deal involves SIA investing $360 million in Air India for a 25.1 per cent stake in an enlarged Air India group, which would give it a significant presence in key market segments in India.

The proposed merger has cleared some regulatory hurdles and now awaits Indian foreign direct investment approval.

In November 2023, SIA and Scoot announced a target of replacing 5 per cent of their total fuel requirements with sustainable fuels by 2030. The carriers signed an agreement in May 2024 to buy 1,000 tonnes of this fuel from Neste, which it produces at its refinery at Changi Airport.

The group’s passenger network covers 125 destinations in 36 countries and territories, including Singapore. SIA serves 78 destinations and Scoot, 69. The cargo network reaches 129 destinations in 37 countries and territories, including Singapore.

SIA shares closed up 0.9 per cent at $6.97 on July 31.