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Singapore Airlines’ Full Year Results: Profits Take to the Skies

OLYMPUS DIGITAL CAMERASingapore’s flagship airline company Singapore Airlines (SGX: C6L) reported its full year results on Thursday evening and posted a 13% year-on-year gain in annual net profit from S$335.9m to S$378.9m. This was accompanied by a slight 1.6% increase in revenue from S$14.9b last year to S$15.1b.

In a notoriously difficult industry like the airlines business, an increase in earnings and revenue will likely be welcome. But, it was not entirely a bed of roses for SIA as its operating profit for the year fell by 20% from S$285.9m to S$229.2m.

The big picture overview for the company’s increase in net profit despite a lower operating profit can be attributed to sales of aircraft, spare-parts and higher interest income. Meanwhile, SIA’s operating profit fell because of high fuel prices and lower yields for both passengers and cargo (a decrease of 4.2% and 4.3% respectively) that it flew.

Yields essentially measure the revenue per distance travelled. So, lower yields would mean passengers and cargo have paid lower prices to travel the same distance, which is generally a bad thing for airlines.

Moving on to SIA’s revenue growth, the main factor for it was a 7.3% increase in passenger carriage, which compensated for a 6% drop in cargo load.

SIA has also been busy with buying and selling stakes in other airlines. Just last month, the company had unveiled an intended purchase of S$158.9m worth of Australian airlines Virgin Australia’s shares. The timing could have been a little unfortunate though, as Virgin Australia recently announced an earnings downgrade that sent its shares into a nose dive.

That’s not all from the freewheeling SIA though. Last December, the company announced it would be selling its 49% stake in Virgin Atlantic to Delta Air lines in America for S$447m. The sale, which is subject to regulatory approval, is expected to be completed in the fourth quarter this year.

And finally, here in Singapore, SIA had subscribed for Tiger Airways (SGX: J7X) Rights and Convertible Securities Issue and would be contributing a total of S$227.9m to purchase these securities from the budget carrier.

Regarding the new financial year, SIA sees an uncertain global economy characterised by “weakness in the Eurozone and sluggish recovery in the United States”.

Management added that “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 revenue-generating 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.”

In a move that should please shareholders, SIA has raised its final dividend to 17 cents per share. That brings the total dividend pay out for the year to 23 cents per share, an increase of 15% over last year’s 20 cents per year dividend.

The market does not seem to be too pleased with SIA’s results as its shares started the day at $11.18, representing a 2.4% decrease from yesterday’s close. At that price, shares of the company would sport a Price-Earnings ratio of  35 and fetch a dividend yield of 2.1% based on a pay out of 23 cents per share.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.