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Singapore Airlines 2014 Earnings Dropped 5%

Singapore Airlines (SGX: C6L), the flagship carrier for Singapore, announced its audited results for its financial year on 8th May 2014. Singapore Airlines has always been one of the poster children for flagship carriers around the world. It has just been awarded as Fortune Magazine “Top 50 World’s Most Admired Companies” and voted many times as the World Best Airlines by numerous magazines and ranking agencies.

Is that enough?

Yet, Singapore Airlines still saw its earnings fall. SIA ended the financial year with a mere 1% increase in revenue to S$ 15.24billion. It achieved an operating margin of 1.7% for the year, recording S$ 259.3million in operating profits. Its largest cost continues to be staff costs, fuel costs and asset depreciation, combining to about 63% of its revenue. Facing with losses from its associated companies, mainly from Tiger Airways Holdings (SGX: J7X), the company ended the year with a profit of S$ 359.5million for its shareholders.

Its balance sheet, SIA has one of the strongest balance sheets in the industry, holding only S$ 965million of debt to its S$ 13.57billion of equity. Given that it has cash holdings of S$ 4.9billion, the company is essentially a net cash company in the airline industry, something rare in the industry. Unfortunately, the company had to increase its investment in Virgin Australia and Tiger Airways through fund raising exercises by its related companies.

Going Forward

SIA is not optimistic about its prospects in the near future. Although there might be a demand increase, the competition is heating up and margins might be in greater pressure going forward. In that case, SIA Cargo division might continue to see more losses going forward.

Foolish Bottom Line

Singapore Airlines, considered of being the best of the best in the airline industry. Yet, it is struggling to earn a decent profit from its operation. One has to wonder what is happening to the other airlines currently in this landscape, just take a look at Tiger Airways.

SIA closed on 8th May 2014 at S$ 10.25 per share, trading at 33.5 times Price to Earnings Ratio.

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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 Stanley Lim doesn’t own shares in any companies mentioned.