Singapore Airlines Ltd’s Latest Earnings: What Investors Should Know

Singapore Airlines Ltd (SGX: C6L) – or better known as SIA – reported in its second quarter earnings report for the financial year ending 31 March 2016 (FY 2015/16)  yesterday evening. The reporting period was for 1 July 2015 to 30 September 2015.

The full service airline carrier needs no introduction. Beyond that, SIA also owns a majority stake in Tiger Airways Holdings Limited (SGX: J7X) and SIA Engineering Company Limited (SGX: S59). SIA is also one of the 30 components in the market benchmark the Straits Times Index (SGX:^STI) .

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

Financial highlights

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

  1. Revenue for the second quarter was $3.84 billion, down 1.6% compared to the same quarter last year.
  2. For the second quarter, profit attributable to shareholders was $213.6 million, up a stupendous 135% compared to the second quarter last year.
  3. SIA’s earnings per share (EPS) followed suit with a 138% jump from 7.7 cents in the second quarter last year to 18.2 cents in the reporting quarter.
  4. For the second quarter, cash flow from operations came in at $614.6 million with capital expenditure clocking in at $746 million. The higher capex resulted in the airline operator generating negative free cash flow of $131.4 million.
  5. As of 30 September 2015, the group had $4.9 billion in cash and equivalents and borrowings of about $1.4 billion.

Despite the dip on the topline, SIA recorded significantly stronger profits. The airline operator also maintained a strong net cash position. A strong balance sheet is important for the firm as the airline passenger industry is historically tough to navigate.  

On the hand, SIA registered negative free cash flow. This figure is worth monitoring in the quarters ahead.

Lastly, the board of directors declared an interim dividend of $0.10 per share, up 100% compared to the year before.

Operational Highlights

Overall revenue for the second quarter of FY 2015/16 was lower due to a 4.6% drop in passenger yield. Operating profit improved from lower losses at SIA Cargo and Scott as well as a stronger showing at SIA Engineering and Silkair. The parent company, namely SIA, reported weaker operating profit.

Net profit in the reporting quarter benefited from higher dividends from long-term investments and the absence of loss from associated companies as part of the reclassification of Tiger Airways as a subsidiary.  

As of 30 September 2015, SIA had a fleet of 104 passenger aircrafts with an average age of seven years and four months.

Speaking of the outlook ahead, the management team at SIA added the following commentary:

“Uncertainty in economic conditions persists, exacerbated by concerns about China’s slowing economy, which have led to weakening emerging-market currencies and volatility in stock markets. The outlook for both passenger and cargo traffic is cautious. Yields remain under pressure in the face of capacity additions from other airlines. Advance passenger bookings for the October-December quarter are positive, but mainly bolstered by promotional activities.

Fuel prices remain range-bound. For the second half of the financial year, the Group is 50.7% hedged at a weighted average price of USD 93 per barrel. A rising US Dollar will put pressure on operating costs.

Faced with these challenges, the Group will maintain strict cost discipline and will leverage the various airlines in the Portfolio to remain flexible and nimble in tapping all key market segments. The Group is well placed to retain its competitive edge through the many strategic initiatives that are in place, supported by a strong balance sheet.”

Foolish take away

At its closing price yesterday of $11.15, SIA traded at a 23.9 times trailing earnings with a trailing dividend yield of 2.4%.

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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.