9 Quick Things Investors Should Learn About Singapore Airlines Ltd

Singapore Airlines Ltd (SGX: C6L) – or better known as SIA – is one of the cool companies in Singapore that shares webcasts and/or transcripts of their earnings presentations (the link for SIA is here).

The full service airline carrier needs no introduction, as it is well known by Singaporeans.

You can read more about SIA in here.

What’s the story?

Below are nine useful things I learned from reading the transcript of SIA’s second-quarter earnings presentation for its financial year ending 31 March 2016 (FY15/16):

  1. Stephan Barnes, SIA’s Senior Vice President for Finance, started the conference call by covering the results of the parent company, Singapore Airlines. He noted that there were three themes which continue to be in play: Pressure on passenger yields; the tailwind of lower fuel costs; and a stronger US dollar. The stronger greenback affects SIA’s US dollar-denominated costs.
  2. The fiscal second-quarter also saw a historically high load factor of 83.7%. A higher load factor represents a higher number of passengers flown for each available seat per kilometer (km). However, passenger yield (cents / pkm) – a measure of average fare paid per mile – slumped by 4.6% year-on-year. Barnes noted that the stronger traffic was driven by promotional activity which lead to lower yield. He also added that Europe has been a challenging area due to new capacity added by current carriers.
  3. Passenger yield was 10.4 cents / pkm for the second-quarter. Passenger unit cost – a measure of operating expenses per available seat-km (ASK) – was 8.7 cents per ASK, a 3.3% year-on-year decline. Barnes noted that the cost reduction came entirely from lower fuel cost. Ex-fuel costs rose 7.8% year-on-year, indicating that costs would have risen if not for the savings from cheaper fuel.
  4. Revenue slumped by $225 million in the second-quarter compared to a year ago. There was a significant reduction in passenger revenue mainly due to lower yields. Bellyhold revenue in SIA cargo reduced due to the passing through of lower fuel cost.
  5. Barnes also noted that the fuel hedging losses, which cost $466 million this quarter will start to narrow as new hedges are put in place this year. The new hedges will reflect the current year’s fuel prices.
  6. Goh Choon Pong, Chief Executive Officer for SIA, added that both SilkAir and its subsidiary, SIA Engineering Company Ltd  (SGX: S59), did well from an operating profit perspective for the first-half of the fiscal year. SilkAir’s contribution rose five-fold while SIA Engineering’s profit benefited from lower cost which offset a fall in revenue. There was also reduced losses at SIA Cargo and its Scoot division. As a whole, net profit for SIA was up strongly compared to the first half of last year. This resulted in the doubling of the interim dividend payout for SIA from 5 cents per share a year ago to 10 cents per share for the current fiscal year.
  7. SIA is expected to spend close to $22 billion over the next five years. The majority of it will go to the purchase of new aircrafts. This includes the A350-900 Ultra Long Haul planes which will allow SIA to operate non-stop from Singapore to US. Goh believes that this will provide SIA with a competitive advantage over other airline operators which have to stop in-between. With seven new long haul aircrafts on order, SIA is looking for new places to introduce this non-stop option beyond its traditional points of Los Angeles and New York.
  8. Goh also paused to reflect on SIA’s overarching strategy. He said that SIA’s past success was due to its focus on the full-service premium segment of travel. In the past five years, he said that SIA Group has broadened its strategy to include two operations for budget airlines and multiple regional joint-ventures. Goh gave credit to his staff for undergoing this fundamental change.
  9. Following its strategy, SIA also plans to delist its majority-owned subsidiary, the low-cost carrier Tiger Airways Holdings Limited (SGX: J7X). The offer price is 41 cents per share. Shareholders of Tiger Airways also have an option of choosing SIA shares instead of taking cash. Goh believes that SIA will offer the best option for Tiger Airways to grow and that the offer price is at a premium to analyst’s estimates. Goh, though, declined to provide a quantitative number of the benefit of bringing Tiger Airways under SIA’s umbrella.

Foolish takeaway

To buy and hold a company’s shares for the long-term also means the need to keep up with its developments.

The access to management teams via webcasts and transcripts gives  investors a fair chance to judge for themselves whether they would like to be invested alongside those teams. It also helps us put together a more complete thesis around a company and keep up with developments in its industry.

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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 company mentioned.