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Singapore Airlines A-380 taking off at Terminal A of Zurich Airport on September 8, 2018 in Zurich, Switzerland. (Image by Fedor Selivanov / Shutterstock.com)

Singapore Airlines profit drops by 47.5% despite recording highest annual revenue to date

Singapore Airlines (SIA) has reported a 47.5% decline in profit for the financial year of 2018/19 despite also recording its highest annual revenue to date (S$683 million).

In a report on the Group financial performance released on 16 May, SIA named ‘transformation initiatives’ as contributing to the company’s record revenue performance, however an increase in fuel prices significantly affected the group’s net profit which was S$683 million, 47.5% lower than last year which was $1.3 billion.

Group expenditure rose by 7% to S$15.3 billion with higher net fuel costs contributing two third of the increase. The Group’s fuel expenditure rose 17.6% or S$688 million as net fuel prices increased by over 21.6% per barrel last year, said SIA.

Of the group’s companies, SIA, SilkAir and SIA Engineering all showed an operating profit of S$991 million, S$15 million, and S$57 million respectively with the exception of Scoot which recorded an operating loss of S$15 million. Last year, Scoot recorded an operating profit of S$78 million.

While passenger flown revenue for the group increased by S$568 million (5.8%) from last year, there was also a rise in expenditure of over 6%. According to the statement, this is attributable to a higher net fuel cost which increased by 16.6% to S$535 million from the previous year due to higher fuel prices as well as due to the expansion in operations.

As for the reason behind Scoot’s stunning swing from profit to loss, a decline of S$93 million, SIA said that the cost of expansion outweighed revenue growth and that Scoot’s performance was substantially affected by the slowdown in the rate of growth of Chinese travellers. While Scoot showed some growth in passenger traffic (14.6%) and growth of capacity (15.1%), that wasn’t enough to counter the high fuel costs and expansion costs.

Furthermore, the statement added that ‘unusual levels of operational disruptions, largely relating to 787 engine issues’ has also largely affected Scoot’s performance.

Final dividend of 22 cents

On the subject of dividends, the Board of Directors recommended a final dividend of 22 cents per share for the financial year of 2018/19. Added to the interim dividend of 8 cent per share paid on 1 December 2018, that brings the total dividend for 2018/19 to 30 cents per share which will be paid on 16 August 2019 for shareholders as at 2 August 2019.

Routes and suspensions

The report noted that Scoot services to Dhaka, Dalian, and Honolulu were terminated following a network review while the Bengaluru and Shenzen services will be transfer to SIA and SilkAir respectively. Scoot will also be suspending services to Lucknow, Kalibo, Quanzhou, and Male in the coming months due to weak demand. Flights to Male, however, will continue to be operated by SIA and SilkAir.

While the group is optimistic about demand growth, it is notes that China’s international traffic growth rates have softened. That, added to the ongoing trade disputes and slowing economic growth in key markets, pose uncertainty to the operating environment, said the report. The report adds that fuel cost headwinds may persist on supply risks in the oil markets but assures shareholders that the group has taken steps to mitigate the effect of higher fuel prices.

As for the recent scare relating to Boeing 737 MAX which was involved in two fatal crashes in the past 8 months – Lion Air flight in October 2018 and Ethiopian Airlines flight in March 2019 – SIA says it has suspended those aircraft from service until further notice