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

Singapore Airlines Ltd (SGX: C6L) reported its second quarter earnings for its financial year ending 31 March 2017 (FY 2016/17) yesterday evening. The reporting period was for 1 July 2016 to 30 September 2016.

The company’s namesake full service airline needs no introduction. But, Singapore Airlines also owns other airlines such as full service carrier SilkAir and the low-cost carriers Scoot and Tigerair. Yesterday, Singapore Airlines also announced that Scoot and Tigerair would be merged under one brand name next year.

Beyond airlines, Singapore Airlines is also the majority owner of SIA Engineering Company Ltd (SGX: S59), a provider of maintenance, repair, and overhaul (MRO) services in the aviation industry.

You can read more about Singapore Airlines in here or catch up with the results from the company’s previous quarter in here.

Financial highlights

The following’s a quick take on some of Singapore Airlines’ latest financial figures:

  1. Revenue for the reporting quarter was $3.65 billion, down 5.1% compared to the same quarter last year.
  2. Profit attributable to shareholders was $64.9 million, down almost 70% compared to the second quarter last year.
  3. Earnings per share (EPS) followed suit with a 70% decline from 18.3 cents in the second-quarter of FY2015/16 to 5.5 cents in the reporting quarter.
  4. Cash flow from operations came in at $419.2 million with capital expenditure clocking in at $834.9 million. The higher capex resulted in the airline operator generating negative free cash flow of $415.7 million, down from the negative $131.4 million seen a year ago ($614.6 million in cash flow from operations and $746 million in capex).
  5. As of 30 September 2016, Singapore Airlines has $3.28 billion in cash and equivalents and borrowings of about $1.16 billion. This is a decline from a year ago when the group had $4.87 billion in cash and equivalents and borrowings of about $1.39 billion.

In sum, Singapore Airlines recorded lower sales and a sharp fall in profit. The airline operator also registered negative free cash flow. These could be worth watching in the quarters ahead.

On the other hand, Singapore Airlines still has a good net cash position. A strong balance sheet is important for the firm as the airline industry has historically been tough to navigate.

Lastly, the board of directors declared an interim dividend of $0.09 per share, down 10% compared to the year before.

Operational highlights and outlook ahead

Singapore Airlines’ revenue was down due to lower passenger load and lower revenue pax per kilometer. The former slipped by 3.3% while the latter was down 4.6%.

Operating profit for the parent company was down around 19% to $79 million. Meanwhile, SilkAir also had lower operating profit of $17 million, down 19% year-on-year. Scoot and Tigerair both recovered from operating losses a year ago to register minor operating profits each.

As of 30 September 2016, Singapore Airlines has a fleet of 104 passenger aircraft with an average age of seven years and eight months.

Speaking on the outlook ahead, the management team at Singapore Airlines added the following commentary:

“The passenger airline business continues to be impacted by geopolitical uncertainty and weak global economic conditions. The outlook in most major economies remains tepid. Furthermore, excess capacity and aggressive pricing continue to persist in the market, exerting pressure on loads and yields.

The outlook for the cargo business remains challenging as yields are expected to stay under pressure due to overcapacity in the air cargo industry. Efforts will continue to be focused on higher-yielding product segments to improve the overall traffic mix.

Fuel prices remain volatile given the uncertainty over how the proposed cut in OPEC oil production would be implemented. For the second half of the financial year, the Group has hedged 29.3% of its jet fuel requirement in Singapore Jet Kerosene (MOPS) and 3.0% in Brent at weighted average prices of USD 68 and USD 63 per barrel, respectively.

The Group will remain nimble and flexible, leveraging its portfolio of airlines to cater to demand in different travel markets, while maintaining cost vigilance.

The improved operating capability and efficiency of the growing Airbus A350 fleet is enabling the launch of previously unserved new routes, while the deep integration between Scoot and Tiger Airways continues to provide cost efficiencies and opportunities to enhance network connectivity. Both the full-service and low-cost airline segments are boosting the Group’s competitiveness and are offering new opportunities for expansion.”

At its closing share price yesterday of $10.11, Singapore Airlines traded at a 14.5 times trailing earnings with 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.