Strong demand from Australia and New Zealand and increases in corporate travel boost SIA profitability

A pick-up in corporate traffic and strong demand from Australia/New Zealand has led to an improvement in profitability at Singapore Airlines (SIA).


Summary:

  • SIA the parent airline reported a 49% increase in operating profit for the half year ending 30-Sep-2017 to SGD411 million (AUD401 million);
  • Australia and New Zealand have contributed to the improved demand landscape for SIA;
  • SIA has seen improved take-up from the banking and professional services sector.

SIA the parent airline reported a 49% increase in operating profit for the half year ending 30-Sep-2017 to SGD411 million (AUD401 million). For the fiscal second quarter ending 30-Sep-2017, the parent airline’s operating profit more than doubled to SGD170 million (AUD166 million). These figures exclude sister airlines SilkAir and Scoot, which both had a decline in operating profits for the quarter and half-year.

RPKs for the parent airline increased by 2.7% in the fiscal first half despite a 0.1% decline in ASKs. SIA’s average load factor therefore improved by 2.8 ppts to 80.9%. Yield was down 2%, continuing a trend of yield declines the last few years but the year-over-year reduction has narrowed.

Australia and New Zealand have contributed to the improved demand landscape. SIA CFO Stephen Barnes noted, during the group’s analyst briefing to discuss the half-year results, “strong demand” from the Southwest Pacific region, despite “significantly more capacity added”. SIA has been adding capacity over the last year across its Southwest Pacific network, which includes six destinations in Australia and three in New Zealand.

SIA EVP commercial Mak Swee Wah also noted that demand from the corporate travel sector has improved. He credited strong corporate travel demand for the smaller year-over-year yield decline compared to previous quarters. SIA’s second quarter and first half profits at both the group and parent airline level were significantly higher than analysts expected, due in part to a lower than expected yield decline.

“The market has generally been a bit more buoyant than before,” Mr Wah said. “We are talking about relative terms, although there is still a lot of capacity in the market and there’s still a lot of pressure but I think because of the firmer demand, we have been able to hold some of the yields better. In particular for example, corporate traffic, we are seeing a better take-up from the banking sector, the professional services sector.”

As an industry bellwether, the pick-up in demand noticed by SIA is significant. The airline has faced intensifying competition from both Gulf and North Asian airlines, particularly in the Australia market.

SIA has doubled down by expanding in Australia despite the intensifying competition. The gamble seems to have paid off as SIA’s profits are again on the rise following a period of declines.