Singapore Airlines Ltd’s Latest Earnings: Can the Good Times Last After A 162% Surge In Profit?

Singapore Airlines Ltd (SGX: C6L) – or better known as SIA – released its first-quarter earnings report for the fiscal year ending 31 March 2016 (FY2016) yesterday evening. The reporting period was for 1 April 2015 to 30 June 2015.

The company’s namesake full-service airline needs no real introduction. But beyond that, SIA also owns a majority stake in low-cost carrier Tiger Airways Holdings Limited (SGX: J7X) and aircraft maintenance, repair, and overhaul outfit SIA Engineering Company Limited (SGX: S59). SIA is also one of the 30 components in Singapore’s stock market benchmark, the Straits Times Index (SGX:^STI).

You can read more about SIA in here or catch up with the airline’s previous quarter’s earnings here.

Financial highlights

The following’s a quick take on SIA’s latest financial figures:

  1. Revenue for the first-quarter was $3.7 billion, up by around 1.4% compared to the same quarter last year.
  2. But, profit attributable to shareholders for the reporting quarter had spiked by a stupendous 162% to $91.2 million when compared to FY2015’s first-quarter. SIA had benefited from a significant fall in fuel cost for the reporting quarter.
  3. Consequently, earnings per share (EPS) for the reporting enjoyed a 160% year over year jump from 3.0 cents to 7.8 cents.
  4. For the first-quarter, SIA’s cash flow from operations came in at $782.2 million with capital expenditures clocking in at $592.5 million. The lower capex resulted in the airline operator generating $189.7 million in positive free cash flow. This is a nice improvement from a year ago when free cash flow was just S$95.7 million (S$646.8 million in operating cash flow and S$551.1 million in capital expenditures).
  5. As of 30 June 2015, SIA had $5.5 billion in cash and equivalents and borrowings of about $1.7 billion.

In all, SIA recorded stronger profits and free cash flow for the quarter despite revenue coming in flat. The airline operator also maintained a strong balance sheet with a S$3.8 billion net cash position. A strong balance sheet is important for the firm as the airline industry has been historically tough to navigate.

Operational highlights

SIA’s revenue for the reporting quarter was propped up by its increased stake in Tiger Airways (SIA had obtained a majority stake in Tiger Airways in October 2014). Without Tiger Airway’s revenue contribution, SIA’s overall revenue would have declined by 3.2% to $3.6 billion.

On an ex-Tiger Airways basis, SIA’s non-fuel costs remained relatively stable despite the 3.2% fall in revenue.

Meanwhile, SIA’s fuel cost could have declined further, but there was an offset from losses in fuel-cost-hedging of S$263 million; 58.5% of the group’s fuel requirement was hedged at a weighted average price of US$110 per barrel for the quarter. Fuel-hedging losses are expected to continue into the next quarter with 55.4% of SIA’s jet fuel requirements being hedged at a weighted average price of US$104 per barrel.

As of 30 June 2015, SIA had a fleet of 105 passenger aircrafts with an average age of 7 years and one month.

Regarding SIA’s outlook ahead, the management team have the following comments:

“Advance passenger bookings for the July-September quarter are higher year-on-year, mainly supported by promotional content. There is weaker demand for Americas and Europe regions, reflecting the competitive environment. Yields are expected to remain under pressure.

Investment in product upgrades will continue during the year. With the new Premium Economy Class debuting in early August, customers will be offered greater choice.

Air cargo yields are unlikely to see an upturn as industry overcapacity persists. SIA Cargo will continue to manage capacity carefully, while actively pursuing opportunities in special product segments to stimulate yields.

The Group will continue to make prompt adjustments to capacity deployment to address changing market demand. Efforts are also being taken to offer customers enhanced products and services, and a more integrated network across the various airlines in the portfolio. A strong balance sheet and prudent management will position the Group well to meet the current challenges.”

Foolish take away

At its closing price yesterday of $11.42, SIA traded at a hefty 31.5 times its trailing earnings and carries a trailing dividend yield of 1.9%.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.