Singapore Airlines (SIN: C6L) is the world’s largest airline by market capitalization and ranks 9th in the terms of international passengers carried. 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.
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. SIA, which earns 40% of its revenue from business class passengers, saw world-wide premium travel revenue fall by 44%, and average premium fares decrease by more than 20% in the first quarter of 2010.
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.
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. 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.
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.
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.
|Year||Passengers (Thousands)||Revenue Passenger-KM||Available seat-km (Millions)||Load Factor||Passenger Yield||Passenger Unit Cost||Breakeven load factor|
In the first quarter of 2009-2010, SIA reported a quarterly loss of S$307 million, its first since the 2003 SARS crisis. 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.  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. 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. 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)|
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 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. However, SilkAir, which operates in Asia, carried 2 million passengers, up 7.7% from the previous year.
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.
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.
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.
This segment is engaged in other services, such as training of pilots, air charters and tour wholesaling.
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. At Singapore’s Changi Airport, low-cost carriers accounted for 20% of passengers and 25% of flights in 2009.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. 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.
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
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.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.
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 , will also affect SIA and other international airlines.
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. 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:
|Airline||Passenger (Millions)||Available Seat-KM (Millions)||Load Factor (%)|
|China Eastern Airlines||37||75964||62|