Singapore Airlines (SIN:C6L)

QUOTE AND NEWS
Wall Street Journal  Jul 30  Comment 
Singapore Airlines said its first-quarter net profit fell 71%, as revenue weakened and it remains under pressure to sell seats at a discount due to stiff competition.
The Straits Times  Jul 15  Comment 
July 16, 2014 1:17 AM NATIONAL carrier Singapore Airlines maintained a passenger load factor of 81.5 per cent last month.
Channel News Asia  Jul 15  Comment 
Singapore Airlines says higher demand for its East Asia and South West Pacific routes pushed up the number of passengers it carried for the month by 0.9% from the year before.
The Australian  Jul 4  Comment 
SINGAPORE Airlines chief Goh Choon Phong has been named as the third airline shareholder director on Virgin Australia’s revamped board.
DailyFinance  Jun 30  Comment 
EAST AURORA, NY -- (Marketwired) -- 06/30/14 -- Moog Inc. (NYSE: MOG.A) (NYSE: MOG.B) and Scoot Pte Ltd., a subsidiary of Singapore Airlines, signed a 12 year exclusive contract for comprehensive support of the Moog Flight Control Systems on...
The Economic Times  Jun 9  Comment 
Tata & Singapore Airlines will begin a major recruitment drive in a couple of days, hiring engineers, security personnel & cabin crew as it prepares itself for launch.
The Hindu Business Line  Jun 6  Comment 
“They prepared me for 13 years and then sent me to India,” David Lau, General Manager of Singapore Airlines (SIA) in India, says philosophically. A Malaysian national, La...
The Hindu Business Line  Jun 2  Comment 
Singapore Airlines, which started its commercial operations of the mega passenger aircraft, A 380, between Singapore and India last Friday — will introduce premium economy segment in this sector.
The Straits Times  May 30  Comment 
May 31, 2014 1:39 AM RUMOURS that Singapore Airlines (SIA) would lift its stake in Tiger Airways sent shares of the budget carrier up so much yesterday that the Singapore Exchange (SGX) lodged a trading query.




 
TOP CONTRIBUTORS

Singapore Airlines (SIN: C6L) is the world’s largest airline by market capitalization and ranks 9th in the terms of international passengers carried.[1] Singapore Airlines (SIA) flies to 65 cities in 35 countries, primarily in the Asia/Pacific region but also in Europe and North America. The Singapore government, through Temasek Holdings, owns 55% of SIA. In 2009, SIA's revenue was S$16 billion (US$ 11.4 billion), up 0.1% from the year before.[2]

In response to the slump in airline travel, brought about by the 2008 financial crisis and compounded by the spread of swine flu, SIA modified its capacity to meet reduced demand. In the second half of 2009, several unprofitable routes were discontinued and service on some other routes were temporarily suspended or scaled back.[3] SIA, which earns 40% of its revenue from business class passengers[4], saw world-wide premium travel revenue fall by 44%, and average premium fares decrease by more than 20% in the first quarter of 2010.[5]

The volatility in fuel prices adds to uncertainty in SIA’s financial performance. However, due to large cash reserves, Singapore Airlines tends to hedge its fuel cost.

Company Overview

SIA maintains a strong presence in Southeast Asia, East Asia, and the competitive “Kangaroo Route” between Europe and Oceania. It's hub is located at Singapore Changi Airport. SIA's fleet consists of 100 aircraft and it is one of the youngest fleets in the industry, averaging 6 years against the industry average of 13 years.[6] SIA is also a member of the Star Alliance, which allows SIA to offer more destinations to its customers. Besides its core business of passenger airline transportation, SIA also operates airline cargo transportation, airport terminal services, and engineering services. In addition, SIA owns 49% stakes both in Tiger Airways and Virgin Atlantic. In May 2009, to focus more on the airline business, SIA began to divest its 81% stake in Singapore Airport Terminal Services.[7]

SIA was the first airline to incorporate the Airbus-A380 aircraft into its fleet and has deployed to heavily-trafficked routes, such as Hong Kong, London, and Paris. The Airbus-A380 is the largest passenger airliner in the world and has allowed SIA to achieve a 20% less fuel burn, in terms of seat/mile, than its next largest aircraft, Boeing's 747-400.[8]

Singapore Airlines key operating metrics are listed below. The currency is listed in Singapore Dollars. As of July 2010, the exchange rate was S$1 = US$ 0.735.[9]

Year Passengers (Thousands) Revenue Passenger-KM Available seat-km (Millions) Load Factor Passenger Yield Passenger Unit Cost Breakeven load factor
2006[10]1699582741.7109483.775.610.67.570.8
2007[11]1834689148.8112543.879.210.97.972.5
2008[12]1912091485.2113919.180.312.18.469.4
2009 [13]1829390128.1117788.776.512.59.273.6

Business and Financial Metrics

In the first quarter of 2009-2010, SIA reported a quarterly loss of S$307 million, its first since the 2003 SARS crisis.[14] The losses were attributed to the global recession, the outbreak of swine flu, and fuel hedging.

In the second quarter, the net loss improved to S$148 million. [15] There was an additional S$56 million in handling charges because of the new A380 aircraft joining the fleet. On the other hand, there was a slight improvement in load factor and sales costs were S$48 million lower due to lower commissions and increased use of computer reservations.[16] The total operating loss for the half year stands at S$428 million with a fuel hedging loss of S$400 million.

From 2005-2009, SIA’s revenue has increased by an average of 7.4% annually.[17] The operating profit hovered around S$1.3 billion, before shooting up to S$2.1 billion in 2007.

Year Revenue (S$ million) Expenditure (S$ million) Operating Profit (S$ million)
2005[18]12013106961317
2006[19]13341121281213
2007[20]14494131801314
2008[21]15973138482125
2009[22]1599615093904

Business Segments

The Singapore Airlines Group adheres to a strategy of related diversification. SIA is involved with passenger and cargo air transportation, airport terminal services, and engineering services. The Group is comprised of the parent airline company and 36 direct subsidiaries and associated companies. The Group also participates in two joint ventures.

Passenger Flight (91% of Operating Profit)[23]|

Passenger flight is, by far, SIA Group’s largest segment. SIA offers passenger flight through Singapore Airlines and its subsidiary, SilkAir, a regional carrier. In addition, SIA owns 49% of budget carrier Tiger Airways and 49% of Virgin Atlantic. However, because returns from these stakes are investment returns, they are not calculated under the operating profit for the passenger flight segment.

In the past year, SIA has faced a sharp decline in passenger traffic. SIA gets 40% of its revenue from business class travel and there was a 44% drop in business class travel.[24] However, SilkAir, which operates in Asia, carried 2 million passengers, up 7.7% from the previous year.

Airport Terminal Services & Food Operations (18.9% of Operating Profit)[23]

Singapore Airport Terminal Services Limited (SATS) is the largest ground-handling and in-flight catering service provider at Singapore Changi Airport. SATS handles about 80% of the total scheduled flights from Changi Airport. In the past year, it has served 30.91 million passengers, handled 88,155 flights, 1.46 million tons of cargo, and produced 25.19 million meals. To extend its presence outside of Singapore, SATS acquired ground handler Menizes Aviaton Hong Kong and launched a 50-50 joint venture with Air India for ground handling. SATS acquired Singapore Food Industries in April 2009.

In Sept. 2009, SIA Group divested SATS and SIA shareholders received 1 share of SIA and .73 shares of SATS for every 1 share of SIA. The management stated the main rationale was to allow SIA to concentrate on airline and aircraft businesses while SATS could increase its exposure to non-aviation businesses.[25]

Cargo (-27.1% of Operating Profit)[23]

Singapore Airlines Cargo is a fully-owned subsidiary of Singapore Airlines. It is the world’s third-largest cargo airline with an 8 billion ton kilometer capacity and serves 36 cities in 18 countries. SIA Cargo operates 12 cargo aircraft and manages the cargo holds of Singapore Airlines’ 108 passenger aircraft. SIA Cargo is part of the WOW alliance, a global cargo alliance with JAL Cargo and the SAS Cargo group. In addition, SIA Cargo owns a 25% stake in Great Wall Airlines, a Shanghai-based cargo airline.

In 2009, SIA Cargo had a S$245 million operating loss due to a sharp decline in cargo traffic. In 2008, the Australian Competition and Consumer Commission alleged that SIA Cargo was fixing the price of a fuel and security surcharge with other airlines.[26]

Engineering Services (12.5% of Operating Profit)[23]

The SIA Engineering Company (SIAEC) is a fully-owned subsidiary of a Singapore Airlines. SIAEC provides aircraft maintenance and repair in Asia-Pacific. It services 80 international carriers and aerospace equipment manufacturers.

In 2009, SIAEC earned an operating profit of S$260.6 million. SIAEC secured a S$90 million Fleet Management contract with V Australia to service its fleet of 7 Boeing-777 aircraft. In addition, the company launched two joint ventures in Philippines and Vietnam.

Other

This segment is engaged in other services, such as training of pilots, air charters and tour wholesaling.[27]

Trends and Forces

Singapore Airlines faces competition from low-cost carriers

In the past year, SIA has been forced to cut capacity and routes as the economic downturn reduced demand. However, low-cost carriers such as Jetstar Asia increased frequencies and added new destinations. Low cost carriers' fares can be up to four times cheaper than SIA's fares.[28] At Singapore’s Changi Airport, low-cost carriers accounted for 20% of passengers and 25% of flights in 2009.[29]The continued rise of these low-cost carriers threaten Singapore Airlines’ passenger base.

To compete with the growth of these low-cost carriers, SIA has responded with M&A activity to maintain its growth.[30] SIA currently owns 49% of Tiger Airways, a low-cost carrier operating in the Asia-Pacific region. However, government regulations in China and India have prevented SIA from acquiring airlines in those countries.

Sensitivity to other currencies

Since SIA conducts its sales in a variety of countries and regions, foreign-exchange rate movements can affect the company’s operating profit. SIA earned 45.8% of its revenue from East Asia, 7.8% from the Americas, 21.2% from Europe, 18.4% from South West Pacific, and 6.8% from West Asia and Africa[31]

The major revenue generating currencies include the Singapore Dollar, British Pound, Euro, Japanese Yen, and Australian Dollar. In the past year, exchange rate movements contributed S$112 million to the Group’s operating profit.[32]This is because of the strength of the Pound, Euro, Yen, and Australian Dollar in the past year. Also, a weaker US dollar led to cost savings from US Dollar-denominated spending.

SIA reports its revenues in Singapore dollars so sales in foreign currencies are converted to Singapore dollars. When major revenue generating currencies increase relative to the Singapore dollar, revenues increase for SIA. On the other hand, SIA's fuel and aircraft-related payments are made in US dollars, so a weak US dollar helps to cut costs for the airline.[33]

Environmental Regulations increase the costs for Singapore Airlines

The European Union will include aviation in its Emissions Trading Scheme for 2012. This rule will affect airlines flying in and out of the EU. The new legislation stipulates that CO2 emissions will have to be cut by 3% in 2012 and by 5% in 2013. Singapore Airlines, which gets 21% of its revenues from Europe, is likely to see costs go up in that region. Other proposed legislation, such as a proposal by the world's 50 least developed countries to levy a US$10 billion a year tax on the aviation industry[34] , will also affect SIA and other international airlines.[35]

Competition

Since 46% of SIA's revenue comes from East Asia, SIA competes with low-cost carriers in this region. In 2006, Singapore Changi Airport opened a dedicated Budget Terminal for these low cost carriers. Low cost carriers' tickets can be up to four times cheaper than SIA's fares.[36] SIA also depends heavily on business class fliers, and therefore also faces competition from larger airlines for this segment. A brief description of the company’s main competitors is listed below:

  • Air France-KLM serves 245 destinations in more than 100 countries around the globe with a fleet of about 640 aircraft. Its primary market is Europe which accounts for 42% of its sales. An additional 17% of its sales come from Asia.
  • British Airways serves about 150 destinations in some 75 countries with a fleet of more than 240 aircraft. With 72% of its sales from Europe, British Airways competes with SIA primarily in Europe. However, British Airways also pursues transatlantic flights, putting it in direct competition with SIA’s long-haul flights.
  • China Eastern Airlines is one of China’s three largest airlines and serves 135 destinations in China. China Eastern competes with SIA primarily in Asia in the passenger and cargo flight segments, with 72% of its sales come from Hong Kong, China, and Japan.
  • Jetstar Asia Airways is a low-cost carrier that operates out of Singapore Changi Airport, competing with SIA on short-haul routes. In 2008, it had a 20% increase in number of passengers carried.


Airline Passenger (Millions) Available Seat-KM (Millions) Load Factor (%)
Air France-KLM[37]7426235979.7
British Airways[38]3314850477
China Eastern Airlines[39]377596462
Singapore Airlines[40]1811778876.5

References

  1. IATA, "Scheduled Passengers Carried"
  2. SIA Annual Report 08/09, pg. 52
  3. SIA News Report, "Second Quarter Loss Narrows to S$159 Million", 11/10/2009
  4. NY Times, "Fewer Choose to Pay for Front-of-the-Plane", 9/21/09
  5. Centre for Asia Pacific Aviation, "Airlines offering far too many Business seats", 6/16/2009
  6. SIA Annual Report 07/08
  7. SIA Analyst Briefing F08/09, Slide 32
  8. ATW Online, "SIA's Chew: A380 pleases, Virgin Atlantic disappoints", 12/13/07 13
  9. Google Finance: Singapore Dollar Exchange Rate
  10. 2005/06 Annual Report "Operating and financial statistics", 31 March 2006
  11. 2006/07 Annual Report "Operating and financial statistics", 31 March 2007
  12. 2007/08 Annual Report "Operating and financial statistics", 31 March 2008
  13. 2008/09 Annual Report "Operating and financial statistics", 31 March 2009
  14. SIA Q1 2009 Report, pg. 14
  15. SIA Q2 2010 News Release, pg. 1
  16. SIA 2007/08 Financial Results, pg. 14
  17. "Analyst Briefing FY08/09", Slide 3
  18. "Analyst Briefing FY08/09"
  19. "Analyst Briefing FY08/09"
  20. "Analyst Briefing FY08/09"
  21. "Analyst Briefing FY08/09"
  22. "Analyst Briefing FY08/09"
  23. 23.0 23.1 23.2 23.3 2008/09 Analyst Briefing "Contribution to Group Operating Profit -- FY2008/09", Slide 7
  24. China Daily, "Rising Jet Fuel will help Airlines Narrow Losses", 6/30/09
  25. SIA Analyst Briefing, FY08/09, Slide 32
  26. Reuters, "Australia watchdog sues Singapore Airlines Cargo", 12/22/08
  27. Reuters: SINGAPORE AIRLINES LTD (SINGF.PK)
  28. Asia Smart Travel, "Is small still beautiful"
  29. FCCS, "Changi Airport Nov passenger traffic up 9.2%", 12/24/09
  30. Reuters India, "Singapore Air says looking for acquisitions", 7/29/08
  31. SIA Annual Report 08/09, pg. 60
  32. SIA Annual Report 08/09, pg. 95
  33. AseanAffairs, "Singapore Airlines reports 36% decline in Q2 profit", 11/07/08
  34. The Guardian, "Airlines reject new tax to fight global warming", 6/8/09
  35. SIA Annual Report 08/09, pg. 20
  36. Asia Smart Travel, "Is small still beautiful"
  37. AFRAF Annual 2008/2009 Report, pg. 33
  38. British Airways 2008/2009 Annual Report, pg. 132
  39. China Eastern Airlines 2008 Annual Report, pg. 132
  40. Singapore Airlines 2008/2009Annual Report, pg. 3
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