3 Positives From Singapore Airlines Ltd’s FY17/18 Results

Singapore Airlines Ltd. (SGX:C6L) has faced many challenges in the last five years. Increasing competition from low-cost carriers and higher oil prices have led to stagnating revenue growth and volatile profits.

That said, in the latest financial year that ended on 31 March 2018, the group has managed to turn its business around, reporting an impressive 6.3% revenue growth, and more than doubling its net profit from the previous year. This is certainly good news for the company and its shareholders.

On top of these impressive numbers, there are some other positives from its latest earnings results that suggest that the airlines can continue to build on its recent good performances.

The Singapore Airlines flagship carrier improves its operating statistics

The available seat kilometer (ASK) is a common metric used in the airline industry to measure the capacity of an airline. In its last financial year, Singapore Airlines main brand’s capacity expanded by 400,000 to 118.1 billion.

In addition, the Singapore Airlines brand managed to increase its passenger load factor at the same time. The passenger load factor measures how many seats the airlines has managed to sell. For the full year, Singapore Airlines increased its passenger load factor to 81.1% from 79%.

Combined, these two factors played a huge part in increasing the brand’s overall revenue and profitability. The recent uptick in passenger load also suggests that despite the heavy competition, the Singapore Airlines brand still possess customer appeal and has been able to attract more customers to its flights this year.

Low-cost brand Scoot shows strong growth

The low-cost airline industry has been growing over the last few years. This is because the vast majority of travellers want to reach their destination in the most economical and fastest way possible.

Singapore Airlines has seen the need to meet the growing needs of this type of customer and has positioned itself well through the introduction of its very own low-cost carrier, Scoot.

This year, Scoot demonstrated exactly why management was keen on expanding its operations to the low-cost space. For the full year, Scoot recorded a $10 million improvement in operating profit. Revenue grew 13.9%, on the back of a 15.9% increase in passenger carriage. Management has also signaled its intention to continue to accelerate Scoot’s growth by adding eight aircraft to its fleet over the next year, expanding its capacity by another 17%.

SilkAir to merge with Singapore Airlines

Finally, the group has announced plans to cease operation of SilkAir and to merge its fleet with Singapore Airlines. This comes at a time when SilkAir’s profitability has decreased. Operating profit for SilkAir in the latest financial year decreased 57.4% to S$43 million.

The consolidation of SilkAir into Singapore Airlines will increase the capacity of the Singapore Airlines brand. SilkAir currently operates a fleet of 33 aircraft, while Singapore Airlines currently has a fleet size of 107.

Besides increasing Singapore Airlines’ capacity, the merger of the two brands under the Singapore Airlines name will optimise the group’s network. It also demonstrates that the management team is willing to make hard choices to streamline its operations to grow in the years ahead.

The Foolish bottom line

Despite recent challenges, Singapore Airlines has done well to reposition itself in the market and to take advantage of the growth in the low-cost carrier industry. The management has also shown its willingness to make big investments to overhaul its operations and to make difficult decisions. These are good indicators, in my opinion, and point to a better future ahead for the company and its shareholders.

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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 Jeremy Chia doesn’t own shares in any companies mentioned.