MIAMI – The Covid-19 pandemic continued to have a severe impact on Singapore Airlines Group’s operations, with passenger traffic falling by 98.9% amid tight global border controls and travel restrictions.
According to the Group, revenue declined US$6.6m (80.4%) year-on-year to US$1.6bm in the H1 of the financial year. Passenger flown revenue fell sharply as Singapore Airlines (SQ), SilkAir (MI), and Scoot (TR) were severely impacted by restrictions on international travel.
This was partially offset by stronger cargo flown revenue, up by US$274m, or +28.3%, as countries sought to restore global supply chains. SQ Group responded to the demand by maximizing freighter utilization and deploying passenger aircraft on cargo missions.
Group’s Financial Performance
Group expenditure decreased US$4.4bn (55.8%) year-on-year to US$3.4bn, attributable largely to lower non-fuel expenditure and net fuel cost.
Non-fuel expenditure was down 54.0% ($3,005 m) year-on-year, following wide-ranging cost-saving initiatives, including capacity cuts, contract renegotiations, and staff-related measures, further aided by various government support schemes. As a result of capacity cuts and lower fuel prices, fuel cost before hedging fell $2,207 m (91.0%) year-on-year.
However, this was partially offset by fuel hedging losses during H1, compared to a gain last year. As a result, fuel cost post hedging was $1.9bn lower year-on-year (84.0%). Mark-to-market losses of $563m on ineffective fuel hedges were recognized in the H1, following a downward adjustment to the expected rate of capacity recovery, and consequently, lower expected fuel consumption.
The Group has paused fuel hedging activity since March 2020, given the uncertain pace of recovery. As a result, the Group swung to an operating loss of US$1.8bn for the H1, a US$2.2bn reversal from an operating profit of US$413m last year.
First Half Loss
For the H1, ended 30 September 2020, the Group reported a net loss of US$3.4bn, a drop of US$3.6bn against last year, driven primarily by the deterioration in operating performance, as well as the following non-cash items:
- An impairment of US$1.3bn on the carrying values of older generation aircraft, with 26 aircraft deemed surplus to fleet requirements after completion of a review of the longer-term network, both indicated in the Business Update issued in July 2020. These comprise seven Airbus A380s, four Boeing 777-200/200ERs, four Boeing 777-300s, nine Airbus A320s, and two Airbus A319s.
- A US$127m charge from the liquidation of TR, as previously reported in the Business Update issued in July, comprising mainly the impairment of seven Boeing 777 aircraft leased to TR and the Group’s share of related costs.
- Having reviewed the impact of Covid-19 on business conditions, the Board also considers it prudent to fully write down the goodwill of US$170m that was recorded when the Group first gained control of Tiger Airways in October 2014.
Overall Profits and Losses
The Group had announced a reduction of about 4,300 jobs across the three airlines. Steps were taken to reduce the number of staff that would be impacted by involuntary release, including salary cuts, a recruitment freeze, open vacancies that were not filled, an early retirement scheme, and a voluntary release scheme for staff.
These measures reduced the number of staff impacted by the manpower rationalization exercise to around 2,000. The Group incurred a cost of US$42m in the exercise.
The Group’s Profit, Loss Account is summarized as follows:
|Group Financial Results||1st Half |
|Net Fuel Cost||376||2,349||1,973||84.0|
|Fuel Cost (before hedging)||218||2,425||2,207||91.0|
|Fuel Hedging Loss/(Gain)||158||(76)||(234)||n.m.|
|Fuel Hedging Ineffectiveness||563||–||(563)||n.m.|
|Impairment of aircraft||1449||–||(1449)||n.m.|
|Impairment of goodwill||170||–||(170)||n.m.|
|Manpower rationalisation costs||42||–||(42)||n.m.|
Strengthening the Group’s financial position
Since the start of the financial year, the Group has successfully increased its liquidity by approximately $11.3 bn.
|Rights Issue (completed in June 2020)||8.8|
|Secured financing on A350-900 and 787-10 aircraft||2.0|
The Group continues to explore additional means to further strengthen liquidity during this period of uncertainty.
Positive discussions have taken place on aircraft saleand-leaseback transactions and are well advanced, and opportunities in the debt capital markets are being evaluated.
The Group also has approval from shareholders until its next Annual General Meeting to raise up to an additional $6.2 bn through the issuance of Mandatory Convertible Bonds.
Fleet and Network
The Group has concluded negotiations with Airbus on a revised aircraft delivery schedule incorporating deferrals for part of the aircraft on order.
Negotiations with Boeing on aircraft currently on order are at an advanced stage. These outcomes will help to moderate the aircraft delivery stream in the near term. Including the 26 aircraft deemed surplus to requirements, and the seven aircraft previously operated by TR and also deemed surplus to requirements, the Group fleet currently consists of 222 passengers and cargo aircraft.
The passenger network is supported by about 39 aircraft. All seven freighters are fully utilized, and around 33 passenger aircraft are deployed on cargo-only services.
They have parked 114 aircraft at Singapore Changi Airport while 29 aircraft are stored in Alice Springs. They will remain nimble and be able to efficiently re-introduce parked and stored aircraft to our operations when required.
Between end-June and end-September SQ increased destinations served from 24 to 30, SilkAir from 3 to 5, and TR from 6 to 16.
Consequently, the Group’s passenger network has increased from 32 destinations in June to 43 destinations, including Singapore, by the end of September. The Group’s cargo network serves 61 cities as of September 30, up from 26 cities as of April 1.
In the coming months, SQ and MI will reinstate passenger services to Brunei, Dhaka, Fukuoka, Johannesburg, Kathmandu, Male, and Penang. TR will also resume services to Melbourne.
The company has also announced that it would launch a three-times weekly service from Singapore to New York’s John F. Kennedy International Airport (JFK) from 9 November, providing a non-stop connection to the U.S. East Coast and supporting both cargo and passenger traffic on the route.
Industry airfreight capacity is anticipated to remain constrained as a result of fewer passenger flights and hence lower belly-hold capacity. This is expected to keep cargo yields and load factors high in the coming months. The Group expects to see a progressive recovery in general cargo demand and continued strong demand from the pharmaceuticals and perishables segments.
Cargo demand is also expected to receive a boost from the big ecommerce sale days and new product launches. They continue to grow capacity to meet demand and expand the cargo network by deploying
passenger aircraft on dedicated cargo operations.
The Group has also removed seats in two of TR’s Airbus A320ceo aircraft and two of SQ’s Boeing 777-300ER aircraft to carry only cargo, and will continue to proactively grow capacity.
Amid the uncertain and highly volatile environment, the Group, with its portfolio of full service and low cost airlines, is ready to swiftly and decisively seize all opportunities and respond to any adverse changes that may arise.
Management Comments on Financial Results
Operating results of the main companies in the Group are shown below:
|Operating (Loss)/Profit||1st Half|
|Parent Airline Company||(1,260)||465||(1,725)|
According to the Group, the operating performance of all the companies was down compared to the previous year. The total revenue of the passenger airline companies plummeted due to significant capacity cuts. This was partially offset by the reduction in ex-fuel costs due to cost-saving measures and Covid-19-related government grants.
In addition to drastically cutting capacity, other cost-saving initiatives included a range of staff measures that encompassed retrenchment, salary cuts, furloughs and no pay leave schemes, renegotiation of contracts and other accommodations by suppliers, and deferral of projects in many areas.
Net fuel cost also decreased primarily due to lower volumes uplifted and fuel prices, partially offset by fuel hedging losses.
Singapore Airlines Engineering
SQ Engineering posted an operating loss of $25 m, a reversal of $62 m from the operating profit last year. Revenue decreased by $290 m 56.5%, due to a reduction in the Group’s business activities as a result of low flight activities and massive grounding of aircraft.
With cost measures implemented and grants from government support schemes, Group expenditure also reduced, though at a lower rate. Expenditure reduced by $228 m (-47.9%), largely due to lower subcontract costs and reduced manpower costs through a range of staff measures.
In view of the significant loss incurred and the need to conserve cash, the Board of Directors is not proposing an interim dividend for the half-year ended 30 September 2020.
Featured image: Wiki Commons
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