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40% Jump in Fuel Price Overshadows Good Progress in Revenue and Cost Efficiency

November 15, 2018 Aviation No Comments Email Email

The SIA Group reported an operating profit of $426 million in the first half of the 2018/19 financial year, a decline of $336 million (-44.1%) from last year’s restated profit of $762 million [Note 2]. Excluding one-off items of $175 million [Note 3], however, the drop in operating profit would have been $161 million (-27.4%). The decline was a consequence of a $379 million (+20.4%) increase in fuel costs.

Flown revenue for the Group rose by $422 million, contributed by passenger flown revenue (+$346 million or +5.8%) and cargo flown revenue ($76 million or +7.4%). Passenger flown revenue was lifted by an 8.8% increase in traffic, outpacing growth in capacity of 5.4%, driving passenger load factor for the Group airlines in aggregate to rise 2.6% points to 83.6%. Passenger unit revenue (measured in revenue per available seat-kilometres) grew 1.3% as transformation efforts yielded positive results. Cargo flown revenue was $76 million (+7.4%) higher on stronger yields (+9.7%), partially offset by lower loads carried (-2.3%).

Revenue contribution from engineering services fell $19 million (-7.9%) on lower airframe and fleet management activities. Together with other miscellaneous changes in revenue, and in the absence of non-recurring revenue, Group revenue improved by $195 million (+2.5%) to $7,907 million.

Expenditure for the Group increased $531 million to $7,481 million (+7.6%), predominantly led by an increase in net fuel cost (+$379 million or +20.4%). Fuel cost before hedging for the Group rose by $692 million, mainly due to a US$26 per barrel (+39.5%) increase in average jet fuel price, partially alleviated by hedging gains versus losses last year (+$313 million). Ex-fuel costs were $152 million (+3.0%) higher, well within the growth in capacity largely contributed by passenger airlines (+5.4%), due to the success of continuing efforts to improve cost efficiency.

The Group recognised an increase in share of losses ($97 million) of its associated companies for the period, mostly due to Virgin Australia (VAH), whose results were impacted by major accounting adjustments following a review of its asset values in accordance with accounting standards. As a result of the review, Virgin Australia de-recognised approximately A$452 million ($456 million) in deferred tax assets and made a A$121 million ($122 million) impairment of the assets of the Virgin Australia International business. The SIA Group recognised its share of losses ($116 million) arising from these non-cash adjustments.

Group net profit fell to $196 million, $435 million (-68.9%) lower than a year ago. The following table summarises the major one-off items affecting the Group results for the first half of both financial years:

  1st Half


1st Half


  $ million $ million
Reported Net Profit 196 631
Exclude Non-recurring Items:    
KrisFlyer Breakage and Aircraft Compensation (175)
Share of VAH’s Accounting Adjustments 116
Tax Impact 30
Adjusted Net Profit 312 486

Excluding the impact of these non-recurring items, adjusted net profit fell to $312 million, $174 million (-35.8%) lower than a year ago. This reduction was the result of a weaker operating performance (-$161 million), despite strong growth in flown revenue, mainly due to the $379 million increase in net fuel costs.

 First Half Operating Results of Main Companies 

The operating results of the main companies in the Group for the first half of the financial year were as follows. The weaker performance for airlines was largely due to higher fuel cost.

  1st Half


1st Half


Operating Profit/(Loss) $ million $ million
Parent Airline Company [Note 4] 418 689
SilkAir (3) 22
Scoot (10) 5
SIA Engineering 22 39

Operating profit for the Parent Airline Company declined $271 million to $418 million, as the increase in expenditure and absence of non-recurring revenue ($175 million) outpaced growth in passenger and cargo flown revenue (+$277 million). Passenger flown revenue rose $201 million (+4.2%), with unit revenue improving by 1.2%. Passenger load factor rose 2.7 percentage points to 83.6% on a 6.0% gain in passenger carriage (measured in revenue passenger-kilometres), and capacity growth of 2.6% (measured in available seat-kilometres). Cargo flown revenue grew $76 million (+7.4%) driven by stronger yields (+9.7%), partially offset by lower loads (-2.3%).

Expenditure was up $348 million (+6.2%), primarily due to higher net fuel cost ($279 million). The effect of significantly higher fuel prices (+$597 million) was partially mitigated by fuel hedging gains (-$256 million) and a weaker US dollar (-$57 million). The rise in ex-fuel costs (+1.7%) was partly contributed by increases in staff costs from higher staff strength, and sales costs on the growth in passenger traffic.

SilkAir reported a half-year loss of $3 million, a reversal from last year’s profit of $22 million.  Total revenue rose $13 million (+2.8%), lifted by 10.5% growth in passenger carriage. However, expenditure was up $38 million, mostly on higher net fuel cost (+$20 million) and ex-fuel variable costs, contributed by a 6.6% increase in capacity. Unit revenue fell 3.6%, while passenger load factor rose 2.7 percentage points to 75.8%.

Scoot recorded an operating loss of $10 million, a deterioration of $15 million year-on-year. Revenue increased $139 million (+19.2%), as passenger traffic grew 19.4%. Unit revenue rose 2.1%. However, expenditure surged $154 million (+21.4%), mainly from higher net fuel cost (+$80 million) and ex-fuel costs from a larger fleet and an expanded operation (capacity rose 16.3%), which outpaced revenue growth. Passenger load factor increased 2.2 percentage points to 86.4%.

Operating profit for SIA Engineering fell to $22 million, a decline of $17 million from a year ago, mainly due to a reduction in revenue on lower airframe and fleet management activities. The deterioration was partially cushioned by lower material and subcontract services costs, as well as foreign exchange gains against losses last year.

 Second Quarter 2018/19 

Operating profit for the second quarter contracted $124 million to $233 million (-34.7%), as expenditure increased $338 million (+9.7%), mainly from fuel and capacity injection, outweighing revenue growth of $214 million (+5.6%). Net fuel cost for the Group rose $226 million (+24.3%), while ex-fuel costs were $112 million (+4.4%) higher, in tandem with the Group’s capacity growth of 5.3%.

The operating results of the main companies in the Group for the second quarter of the financial year were as follows:

  2nd Quarter


2nd Quarter


Operating Profit/(Loss) $ million $ million
Parent Airline Company 237 319
SilkAir (3) 14
Scoot (11) 2
SIA Engineering 11 20

Operating performance for the Group airlines in the second quarter was weaker, despite gains in flown revenue, mostly as a result of higher fuel cost. The Parent Airline Company reported a $133 million gain (+4.2%) in revenue on the back of passenger carriage growth (+6.5%), but this was offset by higher fuel (+$167 million) and other expenditure.

SilkAir and Scoot reported operating losses, as the increase in fuel and expansion costs outpaced revenue growth. SilkAir reported a $5 million improvement (+2.1%) in passenger flown revenue on a 6.0% increase in passenger traffic, but it was insufficient to mitigate a $10 million rise in net fuel cost, amongst other cost increases. Passenger revenue for Scoot rose $79 million (+23.4%), driven by a 21.5% increase in carriage on capacity growth of 18.3%, but this was overshadowed by higher fuel and other costs. 

Group net profit for the second quarter fell to $56 million, $237 million (-80.9%) lower year-on-year. The following table highlights the major one-off item affecting the Group results for the second quarter of the financial year:

  2nd Quarter


2nd Quarter


  $ million $ million
Reported Net Profit 56 293
Exclude Non-recurring Item:    
Share of VAH’s Accounting Adjustments 116
Adjusted Net Profit 172 293

Excluding the impact of the non-recurring item during the second quarter, the adjusted net profit for the period is $121 million lower (-41.3%) against last year. The reduction is primarily the result of a weaker operating performance for the period (-$124 million), despite strong flown revenue growth, mainly due to the $226 million increase in net fuel cost. 


The Company is declaring an interim dividend of 8 cents per share (tax exempt, one-tier), amounting to $95 million, for the half-year ended 30 September 2018. The interim dividend will be paid on 4 December 2018 to shareholders as of 23 November 2018. 


The Parent Airline Company took delivery of its final A380-800 during the July-September period. The aircraft entered service during the quarter along with a sixth 787-10 that had been received in the last quarter. Two of seven A350-900ULRs on firm order were added to the fleet and entered service in October 2018. Two A330-300s and one 777-200 were removed from the operating fleet for retirement. As at 30 September 2018, the operating fleet of the Parent Airline Company comprised 110 passenger aircraft (six 787-10s, 45 777s, 19 A330-300s, 19 A380-800s and 21 A350-900s), with an average age of 7 years. Capacity growth for the financial year is estimated to be 5%.

SilkAir removed one A319 from service in preparation for lease return, ending the quarter with 32 aircraft in operation – eight A320s, two A319s, 17 737-800s and five 737 MAX 8s – with an average age of 4 years and 5 months. Year-on-year capacity growth for FY2018/19 is expected to be 4%.

Scoot added a 787-9, as well as three A320s that had been subleased to IndiGo, to its operating fleet during the quarter, bringing the operating fleet count as at 30 September 2018 to 44 aircraft – 18 787s (10 787-8s and eight 787-9s), 24 A320s and two A319s – with an average age of 4 years and 11 months. As part of its narrowbody fleet renewal plan, the first of 39 A320neos was received in October 2018 and made its debut flight to Bangkok. Capacity is forecast to grow by 16% for the fiscal year. The operating fleet for SIA Cargo remained at seven 747-400 freighters as at 30 September 2018. Capacity is forecast to be flat.


As the launch customer for the ultra-long-range A350-900ULR, the Parent Airline Company commenced the world’s longest non-stop flights, between Singapore and Newark Liberty International Airport, on 11 October 2018, while non-stop Singapore-Los Angeles services were launched on 2 November 2018. Frequency on the

existing non-stop Singapore-San Francisco route will also be increased from 28 November 2018.

The current Los Angeles via Seoul daily service will make its final departure from Singapore on 30 November 2018. With the introduction of a new Singapore-Seoul service, frequency to South Korea will be maintained at four flights per day.

Riding on the success of the new non-stop US flights, the Parent Airline Company will launch Singapore-Seattle services on 3 September 2019 using A350-900s. It will be the fourth non-stop Singapore-US route, providing more convenient air connectivity between Southeast Asia, South Asia and Australasia and North America.

With these changes, the number of destinations in SIA’s network will increase to 64 in 32 countries and territories, including Singapore.

SilkAir flies to 49 destinations in 16 countries, including Singapore, unchanged from last quarter.

Scoot resumed services to Kalibo on 31 October 2018, which had been suspended following the closure of Boracay in April. To cater to demand, services to Perth and various Southeast Asian points will be increased in the second half of the financial year. The carrier’s network covers 67 destinations in 18 countries and territories.

Overall, the portfolio of airlines in the Group will serve 140 passenger destinations in 37 countries and territories, including Singapore.

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


On 25 October 2018, the Company issued $600 million in aggregate principal amount of notes under the Multicurrency Medium Term Note Programme. The notes bear interest at a fixed rate of 3.16 per cent, and will mature on 25 October 2023.


Bookings in the coming months are expected to be stronger year-on-year. However, headwinds continue to persist in the form of cost pressures arising from significantly elevated fuel prices compared to a year ago, as well as keen competition in key operating markets. Notwithstanding concerns over global trade tensions, cargo demand in the near term is expected to remain healthy during the seasonal peak.

The Group continues to hedge its fuel requirements. For the second half of the financial year, the Group has hedged 58% of its fuel requirements in MOPS at a weighted average price of USD71, against the current MOPS price of USD87. Longer-dated Brent hedges with maturities extending to the financial year FY2023/24 cover up to 46% of the Group’s projected annual fuel consumption, at average prices ranging from USD56 to USD64 per barrel, against the prevailing Brent fuel price of USD73 per barrel [Note 5].

Amid continuing challenges in the operating environment, the SIA Group remains committed to its three-year Transformation programme to enhance customer experience, grow revenue and improve operational efficiency. The programme has been producing positive results in all these areas to date.

The recent introduction of new non-stop services to Los Angeles and New York is a significant milestone, providing customers with more convenient travel options, and strengthening the Airline’s competitiveness as well as the Singapore hub. This will be further enhanced next year with the addition of Singapore-Seattle as the fourth non-stop route between Singapore and the important US market.

The Group has also been significantly enhancing its digital capabilities through a multi-phased programme which has seen great progress so far. The programme encompasses company-wide training programmes and participation by staff in innovation projects across the Group; building digital capabilities through extensive IT-related recruitment and a shift to agile delivery of IT projects; large-scale investment in IT infrastructure; and increased collaboration with global tech leaders, start-ups and research institutes.

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