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Singapore Airlines Ltd’s Latest Earnings: Profit Flies Higher But Risks Remain

Singapore Airlines Ltd (SGX: C6L) announced its fiscal full-year earnings (for the fiscal year ended 31 March 2015; abbreviated as FY2014-15) yesterday evening.

The full service carrier saw some important developments in its business earlier in the fiscal year when it increased its investment in low-cost carrier Tiger Airways Holdings Limited (SGX: J7X). Singapore Airlines now owns a majority stake in Tiger Airways; the latter’s also now considered a subsidiary of the former.

With that, here’re some highlights from Singapore Airlines’ latest financial report card.

Financial highlights

Singapore Airlines ended FY2014-15 with annual revenue of S$15.6 billion, up 2.1% from a year ago. But, after adjusting for revenue from Tiger Airways, which was consolidated from October 2014 onward, Singapore Airlines’ revenue had actually declined slightly from S$15.24 billion in FY2014-15 to S$15.21 billion.

But, due to tighter control on staff costs and lower fuel costs, Singapore Airline’s operating profit for the year soared by 58% from S$259 million in the previous year to S$410 million (S$419 million if we exclude Tiger Airways from the numbers; the budget carrier had made an operating loss in the financial year).

The strong growth in operating profit ultimately didn’t result in much bottom-line growth for Singapore Airlines though – the carrier’s profit attributable to shareholders only managed to grow by 2.3% from S$359.5 million in FY2013-14 to S$367.9 million in FY2014-15. A lower share of profits from joint-ventures and a larger slice of losses from associated companies had been big culprits.

In any case, SIA continues to be in great financial shape. It ended 31 March 2015 with a net-cash position (where net-cash refers to total cash minus total borrowings) of S$5.25 billion, up from S$4.88 billion a year ago. The way I see it, Singapore Airline’s management is wise in keeping the company in a strong financial position due to the volatile nature of the airline industry.

Business highlights for the year

Operationally, Singapore Airlines had managed to improve its annual passenger yield by 0.9% from a year ago to 11.2 cents per passenger-kilometer.

The airline had benefitted greatly from a lower cost of fuel as its annual passenger unit cost had dropped by 2.2% year on year to 8.9 cents per available seat kilometre (ASK); without the boost from lower fuel prices, Singapore Airlines’ passenger unit ex-fuel cost actually stepped up by 2% from a year ago to 5.2 cents per ASK.

There is much room for improvement in the passenger unit ex-fuel cost figure as major budget airlines across the region have the selfsame figure below 3 cents per ASK. To be competitive in the long term, Singapore Airlines would need to work hard to drive that figure down.

Segment wise, Singapore Airlines had managed to see an improvement in all its business segments except contributions from its maintenance, repair, and overhaul subsidiary SIA Engineering Company Limited (SGX: S59). SIA Engineering had seen declines in both its top- and bottom-lines in its latest earnings release.

Here’s how the different segments fared in the year in terms of their operating profit:

SIA segmental results

Source: Singapore Airlines’ earnings release

Foolish Takeaway

In all, Singapore Airlines had a good year because of the lower price of fuel following the collapse in oil prices which started in late 2014. However, the increase in its passenger unit cost ex-fuel is a worrying sign. As budget airlines continue to gain popularity in the region, Singapore Airlines would need to address its high cost structure head-on or risk losing to the competition.

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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 writer Stanley Lim does not own any companies mentioned above.