Singapore Airlines Ltd’s Latest Earnings: Revenue Dips, But Profit is Up

Singapore Airlines Ltd (SGX: C6L) reported its fiscal third-quarter earnings for the year ending 31 March 2016 (FY 2015/16) yesterday evening. The reporting period was for 1 October 2015 to 31 December 2015.

The company, which is better known as SIA, is probably familiar with most Singaporeans. But beyond its full service airline, the company also owns a majority stake in low cost carrier Tiger Airways Holdings Limited (SGX: J7X) and aero-engineer SIA Engineering Company Limited (SGX: S59).

You can read more about SIA in here or catch up with the results from its previous quarter here.

Financial highlights

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

  1. Revenue for the third-quarter came in at $3.94 billion, down almost 4% compared to the same quarter last year.
  2. Despite the lower sales, SIA’s net profit was up a healthy 35.5% to $275 million compared to the third-quarter last year.
  3. Earnings per share (EPS) for the third-quarter followed suit with a 37% jump from 17.2 cents a year ago to 23.5 cents.
  4. For the reporting quarter, cash flow from operations came in at $268.6 million with capital expenditure clocking in at $619.6 million. The higher capex resulted in the airline operator generating negative free cash flow of $351 million, up from the negative free cash flow of $487 million a year ago ($149.7 million in cash flow from operations and $636.7 million in capex).
  5. As of 31 December 2015, SIA had $4.3 billion in cash and equivalents and borrowings of about $1.4 billion. The airline’s balance sheet had weakened slightly compared to a year ago when it had cash and equivalents of $5.2 billion and total debt of $1.76 billion.

In my opinion, the reporting quarter had highlighted the many faces of SIA.

Firstly, there was a lack of top-line growth. On the other hand, SIA recorded stronger profit on the back of lower operating expenses.

The airline operator also maintained a strong net cash position on its balance sheet (though it had deteriorated a little, as mentioned), which is important for an industry which has been historically tough to navigate in. But in flipping around again, the higher profit still left SIA with negative free cash flow due to vastly higher capital expenditure.

Operational highlights

Overall revenue for SIA for the third quarter of FY 2015/16 was lower due to weaker yields from its passenger and cargo operations. The company’s operating profit improved mainly due to a strong performance in its namesake brand as well as a turnaround in the operating profit for Scoot, the firm’s low-cost carrier arm. Tiger Airways, SIA Engineering, and SilkAir all reported better operating profit.

Speaking on the outlook ahead, the management team at SIA added the following commentary in the earnings release:

“The challenging operating environment is expected to persist, with travel demand remaining volatile, affected by economic forces and external events. On the competitive front, expansion of other full-service airlines as well as low-cost carriers, particularly in Southeast Asia, will continue to exert pressure on loads and yields. Supported by promotional activities, advance passenger bookings for the January-March quarter are positively tracking seat capacity.

The outlook for air cargo is cautious amid the prevailing industry overcapacity and tepid demand growth. SIA Cargo will continue to manage capacity to better match demand, and pursue higher-yielding product segments.

While more relief could arise from lower fuel prices, which have declined to a 12-year low, fuel continues to make up a significant portion of the Group’s expenditure, with 46.6% of the Group’s fuel requirement in the fourth quarter hedged at a weighted average price of USD90 per barrel.

The Group will remain vigilant in adapting to market changes, drawing on the complementary strengths of the carriers in its portfolio and extensive partnerships with other airlines. With a strong balance sheet and its many strategic initiatives, the Group is well positioned to confront the challenges ahead.”

There are positives in the report, though they were wrapped up in challenges over the horizon and over the longer-term. Some of those challenges, like oil prices, may not be within SIA’s control.

Foolish take away

At its closing price yesterday of $11.16, SIA traded at a 21.1 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.