Singapore airlines financial results are impacted by lower yields

SINGAPORE- Singapore Airlines Group net profit improved 12.8% on a year-to-year basis but the result hides a worrying trend a lower operating profit due to continuous plunging yields as competition continues to grow in Singapore and oil prices remain at record levels.

The S$379 million dollars net profit was due to a surplus on the sale of aircraft, spares and spare engines, and higher net interest income. However, operating profit fell 19.8% (-$57 million) over the preceding financial year to $229 million. The airline explains also this deterioration for worsening economic conditions in many of its core markets in Western Europe as well as in North America.

Amid these challenges, Group revenue was higher by $240 million (+1.6%) as passenger revenue grew on the back of 7.3% passenger carriage growth,  albeit at lower yields. Promotional activities necessitated by intense competition as well as depreciation of revenue-generating currencies against the Singapore dollar drove passenger yields lower by 4.2%.

Group expenditure was up by $297 million (+2.0%), primarily from increases in fuel, staff and variable costs. Fuel accounted for 40% of expenditure during the financial year. While SIA Operating profit was slightly higher at S$187 million (compared to $181 million profit in 2011-12), its regional subsidiary SilkAir recorded a drop of 7% in its operating profit at S$97 million compared to S$105 million profit in 2011-12.

The Parent Airline Company expanded its capacity (in available seatkilometres) by 4.3% during the financial year while passenger carriage (in revenue passenger kilometres) grew by a higher 6.8%. Passenger load factor improved by 1.9 percentage points to 79.3%.

SilkAir’s passenger carriage grew 16.9% but it was unable to match the capacity expansion of 20.2%. Accordingly, passenger load factor slid 2.1 percentage points to 73.6%.

The global economic outlook remains uncertain with the ongoing weakness in the Eurozone and sluggish recovery in the United States. Forward passenger bookings for the next few months are almost flat compared to the same period last year. Yields are likely to remain under pressure amid weak economic sentiment, and revenues will be further diluted if key revenuegenerating currencies continue to depreciate against the Singapore dollar. The cargo business faces an additional issue of overcapacity in the market, which will add pressure on loads and yields. Furthermore, fuel prices remain persistently high.

Meanwhile, the Group’s strong financial position will enable it to weather the many challenges and allow for continued investment in product and service enhancements.

Sourced: TravelDailyNews