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Economic Report On Singapore International Airlines

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In October 2016, Singapore Airlines have suffered poor performance as compared to 2014, which was greatly impacted by global economic conditions and also uncertainties geopolitically, it seems that cargo and passenger yields which are the factors of its profitability had been under strained. Singapore Airlines stocks have fallen during this period with a percentage of 9.7, from previously with only a decline of 2.8 per cent. Singapore Airlines experienced a challenge in regards to the operating environment which has caused their profits to fall rapidly to a value of S$64.9 million from a value of S$213.6 million. During that quarter of 2016, earnings per share also dropped to 5.5 cents in Singapore currency, compared to 18.3 cents in 2015 (Business Times, 2016), with a decline of passenger revenues of 6.4 per cent, S$320 million, though Scoot was able to cover back this fall with the quick growth of its own passenger revenues at S$88 million. Also according to their financial performance results, because of the expansion of capacity by Scoot and Silkair, costs of ex-fuel went up to S$287 million, a 5.9 per cent increase as compared to 2015.

While in the duration of 9 months up to December 2017, Singapore Airlines have improved their group operating profit from $67 million to $595 million, an increase of 12.7%. they have managed to surpass a revenue reduction of 3.2% that had come up just because of a decline in passenger flown revenue, also their expenditure has shrunk 4% of $437 million by the end of March 2017.

SIA Engineering had revealed that due to a high level of expenditure, their operating profit is lower and additionally it had also come with a decrease in revenue. The divestment of HAESL, Hong Kong Aero Engine Services Ltd has caused the expenditure to increase from a provision of its profit-sharing bonus and offset by a smaller production overhead. Income has decreased partly because of its fleet program revenue, moderated by an expansion in its revenue for maintenance. The change in its operating profits was invalidated by profits that is lower due to long-term ventures, $108 million losses from related organizations against shares of profits a year ago $60 million, and the waste and costs of discarding aeroplanes, spare parts, versus a surplus one year back costing $67 million. Which was then covered by a $142 million gain from SIA Engineering’s divestment of HAESL, and the $36 million profits they got it from HAESL following the offer of its 20% stake in Singapore Aero Engine Service Ltd.

SIA Engineering Company has declared on 27 October 2017 that with its joint partners they have gone into an accord with MB Aerospace Newton Abbot Limited for the offer of 100% of shares of the Asian Compressor Technology Services Company Limited. Which is expected to be the value of $14.3 million. Amidst the second last quarter, Singapore Airlines took the conveyance of five A350-900s, four of them went into service by the end of December 2017. SIA has also risen the number of flight services and has spread the company’s route system, in order to take care of demand in this year. Singapore Airlines repeatedly studies and adjusts its fuel policies to oversee the instability of fuel prices. For the final quarter of the financial year, SIA has supported 37.4% of its fuel in Singapore Jet Kerosene (MOPS) at a weighted normal cost of USD67 per barrel. A growing, eco-friendly A350-900 fleet has allowed the expansion of all the longer routes for SIA.

In November 2017, Singapore Airline flights from Bali was affected and cancelled due to the volcanic eruptions which were a result of the Gusti Ngurah Rai airport to close down, and affecting 445 flights, and also affecting 196 international routes. 2017 was already expected by analysts to be a tough year for economic conditions and geopolitical worries, close by other market headwinds, for example, competitors pricing strategies. Loads and yields for both the traveller and freight organizations are anticipated to be strained in 2017. Fuel costs have slanted upwards ever since the last quarter of 2017 and are expected to stay unstable as there are still uncertainties in regards to the worldwide oil production yield. Share prices for SIA from the periods of July 2017 to November 2017 dropped a massive low of 7.25%. By the end of March 2016, Singapore Airlines had a net loss of S$138.3 million in the periods of three months, there was a deep drop of operating profits and provisions for SIA cargo with a value of S$132 million due to an EU air cargo competition case. Singapore Airline group have announced that they had planned to re-integrate SIA cargo into the SIA group in order to help with efficiency by the wide range of communication and help across the group itself. Because of these declining yields, the group have decided to review the company’s business in order for a better position in long-term. Quite a few analysts have decided to cut their target prices following this poor income statement from SIA, despite the fact that the aspects of the load get a lift, it will only cost the expense of yields.

Although SIA has made a loss of $138.3 million last year, in the last quarter of 2017, SIA has overcome it and made a profit of $181.8 million, and have continued to make profits until the March of 2018. (Singapore Business Review, 2018) Due to the implications of the oil prices over the recent years, The SIA Group is trying to deliver of modern and eco-friendly aircraft, and further growing its system with full-service of market segments and low costs. However, the main interest is in the new innovation of this airship, and moreover the ongoing dispatch of the new cabin items. The merger between Scoot and Tigerair under the Scoot’s brand was successful which also helps to strengthen the company’s low costs operations.

The fluctuating oil prices are also affecting SIA’s non-stop flights as it might affect the viability of those services. During the month of February in 2018, the Fuel costs have been drifting higher. (Singapore Business Review, 2018) Jet fuel was at the price of US$65/bbl. and Brent at US$45/bbl. However, with these high fuel prices, an analyst named UOB Kay Hian has said that this would be an advantage for SIA as it will give SIA an advantage over pricing against competitors. He also added that this is especially good, because for example Chinese airlines usually do not hedge their jet fuel and because of these high prices of fuel, Chinese airlines will not lower down their ticket price due to the fact that it will most definitely affect their profitability.

However, although analyst Kay Hian said SIA would have a competitive advantage due to the high prices of fuel, on 26 July 2018, the net profit of SIA dropped by 59%, which have definitely backfired the company’s plan to recover the losses from 2017. Due to the high prices of jet fuel, Singapore Airlines net profit fell to S$139.6 million as compared to 2017 net profit of S$337.9 million. Despite the loss, the company will resume the world’s longest flights to New York in October 2018, with the Singapore-Newark services, with the new A350-900ULR. However, initially, the flight was only three times a week and subsequently, now they have increased it to a daily operation in mid-October 2018, only because to be on par with rivals like Cathay Pacific Airways.

The traffic in the passenger market is predicted to increase in the next few months, despite the competition in the market. In 2018, 27 July SIA shares dropped deeply once again by 5.5%, with a few changing hands of 5.1 million shares. Singapore Airline also reported that their net profit in June 2018 had decreased by 58.9 % to a value of S$139.6 million, and being its jet fuel price that consists 40% of its weightage. However, OCBC Investment Research has decided to keep hold of the stock with a value of $11.01, having to consider that Singapore Airlines were going to have an increase in passenger traffic in the months to come, even though the prices of competitors in the market and the costs pressure continues. While Singapore Airlines do not plan on increasing their ticket prices, this is not the case for Scoot. Scoot have decided to increase their ticket prices because of the rising fuel costs, and with Scoot and Singapore Airlines passenger yields to decrease in June 2018 which was a disappointment for investors, who were expecting a rise in the fare prices. However, a representative from Singapore Airlines reassured that the ticket price of SIA depended on the supply and demand.

In conclusion, Singapore Airlines will keep on getting impacted by the economic concerns and geopolitical uncertainties, challenging the company to different heights and pushing pressure on yields and loads, especially with the vigorous pricings in the market.

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