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Operating Profit Of $193m Dampened by Steep Rise in Fuel Price

July 30, 2018 Financial No Comments Email Email

The SIA Group reported an operating profit of $193 million in the April-June 2018 quarter, a $212 million (-52.3%) reduction from prior year’s restated operating profit of $405 million [Note 2], which included non-recurring revenue items of $175 million [Note 3]. Excluding these non-recurring items, the decrease would have been $37 million (-16.1%). Although passenger and cargo flown revenue rose by $178 million, the operating performance was adversely affected by increased net fuel costs (+$154 million), which was driven by a 39.3% increase in the average jet fuel price.

Group revenue amounted to $3,844 million, a $20 million reduction (-0.5%). Passenger and cargo flown revenue increased by $178 million, outweighing the absence of the non-recurring items in the same period last year. The growth in passenger flown revenue (+$148 million, or +5.1%) was driven by an 8.3% increase in traffic, outpacing the decline in passenger yield (-3.2%). Cargo flown revenue was up $30 million (+6.0%), as cargo yield rose 9.9%, albeit on lower loads carried (-3.5%). Revenue contribution by engineering services fell $19 million (-14.9%) on lower airframe and line maintenance activities.

Group expenditure increased $192 million to $3,651 million (+5.6%), predominantly led by an increase in net fuel cost (+$154 million). Fuel cost before hedging for the Group rose by $312 million, mainly due to a US$26 per barrel (+39.3%) increase in average jet fuel price. Half of this increase was alleviated by hedging gains versus losses last year (+$158 million). Ex-fuel costs were slightly higher (+$38 million or 1.5%), partly due to expansion by SilkAir and Scoot.

As a consequence of the weaker operating profit, Group net profit fell to $140 million (-$198 million or -58.6%). Excluding the one-off items in the prior year (post-tax), the Group net profit would have decreased by $53 million (-27.5%).

 First Quarter Operating Results of Main Companies 

The operating results of the main companies in the Group for the three-month period were as follows:

  1st Quarter


1st Quarter


Operating Profit $ million $ million
Parent Airline Company [Note 4] 181 370
SilkAir 8
Scoot 1 3
SIA Engineering 10 19

Operating profit for the Parent Airline Company fell $189 million to $181 million, in the absence of non-recurring revenue ($175 million). Higher flown revenue (+$117 million) was largely eroded by higher net fuel cost. The year-on-year increase in flown revenue was contributed by both passenger (+$87 million) and cargo (+$30 million) operations. The growth in passenger flown revenue was led by a 5.4% gain in passenger carriage (measured in revenue passenger-kilometres), which outpaced a 1.0% decline in yield.  Passenger load factor rose 2.0 percentage points to 82.0%, on capacity growth of 2.8% (measured in available seat-kilometres).

Expenditure was up $133 million (+4.8%), primarily driven by the increase in net fuel cost on higher fuel prices (+$293 million), partially mitigated by fuel hedging gains (-$130 million) and a weaker US dollar (-$51 million).

SilkAir reported a marginal profit of $0.2 million against a profit of $8 million in the same period last year.  Total revenue rose $12 million (+5.0%) as the 15.3% growth in passenger carriage was partially offset by a 10.3% contraction in yield. However, expenditure rose $20 million, contributed by higher net fuel cost (+$10 million) and ex-fuel costs, partly attributable to 10.0% growth in capacity. Passenger load factor rose 3.4 percentage points to 75.0%.

Scoot recorded an operating profit of $1 million, a deterioration of $2 million year-on-year. Passenger traffic growth of 17.1%, partially offset by a 1.8% reduction in yield, contributed to a $58 million (+16.1%) improvement in revenue. However, this was negated by expenditure increase of $60 million (+16.7%) from higher net fuel costs (+$32 million) and an expanded operation (capacity rose 14.2%). Passenger load factor was 2.1 percentage points higher at 86.1%.

Operating profit for SIA Engineering fell to $10 million, a decline of $9 million from a year ago, mainly due a reduction in revenue on lower airframe and fleet management activities. The deterioration was partially cushioned by foreign exchange gains against losses last year, and lower subcontract services costs.


During the April-June 2018 quarter, five 787-10s and two A380-800s entered into service at the Parent Airline Company. The sixth 787-10 received during the quarter began commercial service on 1 July 2018. One A380-800 was removed from the operating fleet in preparation for lease return, while two 777-200ERs were taken out of service for retirement from SIA’s fleet. As at 30 June 2018, the operating fleet of the Parent Airline Company comprised 111 passenger aircraft (five 787-10s, 46 777s, 21 A330-300s, 18 A380-800s and 21 A350-900s), with an average age of 7 years.

SilkAir removed one A320 from service in preparation for sale during the quarter, and added two 737 MAX 8s, ending the quarter with 33 aircraft in operation – eight A320s, three A319s, 17 737-800s and five 737 MAX 8s – with an average age of 4 years and 5 months.

Scoot added a 787-9, and removed two A320s for return to a lessor during the quarter. One A320 that was subleased to IndiGo returned to the fleet and commenced operations in the same period.  The operating fleet as at 30 June 2018 comprised 40 aircraft – 17 787s (10 787-8s and seven 787-9s), 21 A320s and two A319s – with an average age of 4 years and 9 months.

The operating fleet for SIA Cargo remained at seven 747-400 freighters as at 30 June 2018.


The Parent Airline Company will launch the world’s longest commercial flights to New York on 11 October 2018, with non-stop Singapore-Newark services, using the new A350-900ULR. The route will initially be served thrice weekly, and subsequently stepped up to a daily operation from 18 October 2018.

Non-stop Singapore-Los Angeles flights are scheduled to commence on 2 November 2018. Similarly, the initial three-times-weekly services will be stepped up to daily operations from 9 November 2018. A further three services per week will be added from 7 December 2018. Along with the existing one-stop service to Los Angeles via Tokyo, Los Angeles will be served 17 times per week. The current Los Angeles via Seoul daily service will make its final departure from Singapore on 30 November 2018, and cease operations thereafter. With the introduction of a new Singapore-Seoul tranche, the frequency to South Korea will be maintained at four flights per day.

Three more weekly flights on the existing non-stop Singapore-San Francisco route will also be added from 28 November 2018                 .

In addition, selected services will be added in the Northern Winter operating season (28 October 2018 to 30 March 2019). From 28 October 2018, a joint service with Air New Zealand will see a third daily flight between Singapore and Auckland being offered, while a fourth daily Haneda service will be introduced from 28 December 2018. These are subject to regulatory approvals.

With these changes, the number of destinations in SIA’s network will increase to 63, in 32 countries and territories, including Singapore.

During the quarter, SilkAir transferred its Langkawi and Pekanbaru services to Scoot, and terminated Kalibo flights. SilkAir currently flies to 49 destinations in 16 countries, including Singapore.

Scoot recently commenced services to its third long-haul destination, Berlin. In July, it also added services to Nanchang, China. Services to Kalibo were suspended during the planned six-month closure of Boracay, which commenced on 26 April 2018. The carrier’s network covers 67 destinations in 18 countries and territories.

Overall, the portfolio of airlines in the Group will serve 139 destinations in 37 countries and territories, including Singapore.

SIA Cargo will continue to pursue charter opportunities and deploy capacity to match demand. Currently, SIA Cargo’s freighter network covers 19 cities in 13 countries and territories, including Singapore.


Passenger traffic is expected to grow in the coming months, although competition in key operating markets persists.  Costs remain under pressure, especially from higher fuel prices. Cargo demand in the near term is steady despite concerns over global trade tensions, the escalation of which could potentially have a longer-term impact on air cargo demand.

The Group continues to hedge its fuel requirements. For the remaining nine months of the financial year, the Group has hedged 46.3% of its fuel requirements in MOPS (21.8%) and Brent (24.5%) at weighted average prices of USD65 and USD54 per barrel respectively.

Good progress was achieved in the first year of the SIA Group’s three-year transformation programme. The Group will continue to focus its efforts on initiatives to grow revenue, enhance customer experience and improve operational efficiency. The recent announcement on the significant investments to improve SilkAir’s product offering, and its ultimate full merger with SIA, is another key initiative of the transformation programme. At the same time, SIA Group will continue to leverage its portfolio of airlines in Singapore to grow its network. Our joint venture airline in India, Vistara, recently announced the purchase and lease of 56 narrowbody and wide body aircraft to drive its route expansion plan, including international operations.

As part of the SIA Group’s digital blueprint, we have launched KrisPay, the world’s first blockchain-based airline loyalty digital wallet. The digital blueprint also includes collaborations with research institutions and companies in the start-up community, and creating a more innovative and digital culture within SIA through staff training and involvement in digital projects.

The establishment of adjacent businesses such as the Singapore CAE Flight Training pilot training joint venture, as well as development of new e-commerce channels through KrisShop, are well on-track.

These initiatives will further strengthen the SIA Group’s leadership position and bolster its competitive edge, amid continuing challenges in the operating environment.

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