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Singapore Airlines posts first full-year loss in its history; says “no visibility” on recovery timetable
May 15th 2020
Singapore Airlines (SIA) has reported a full-year loss for the first time in its history and said it has no visibility when international air travel might recover from what group CEO, Goh Choon Phong, described as the greatest challenge in aviation history. Read More »
The airline group - full-service Singapore Airlines, regional wing SilkAir and low-cost carrier (LCC) Scoot - reported a net loss of S$212 million (US$149 million) for the 12 months to March 31, 2020, a near S$900 million turnaround from a net profit of S$682.7 million in the prior corresponding period.
The full-year loss was the first in the company's 48-year history and had been flagged in a trading update earlier in the month. The result was due to a disastrous final three months of its financial year as the coronavirus pandemic slammed the aviation industry, as well as recorded losses on its fuel hedging program.
SIA said it suffered a net loss of S$721 million for the three months to March 31, compared with a net profit of S$202.6 million in the prior corresponding quarter.
Revenue in the final quarter of its fiscal 2020 financial year tumbled 22%, to S$3.2 billion, SIA said in a regulatory filing to the Singapore Exchange (SGX) on Thursday evening.
"Group passenger flown revenue declined year-on-year when the gains from the first nine months were wiped out by the decline in the final quarter from global travel restrictions and border controls which led to a collapse in demand for air travel," SIA senior vice president for finance, Stephen Barnes, said in a slide presentation to analysts and media on Friday.
The airline group said it was negotiating with aircraft manufacturers to adjust delivery dates for aircraft already on order and deferring non-aircraft projects, in efforts to reduce capital expenditure and conserve cash.
SIA was raising S$8.8 billion in a rights issue and another S$6.2 billion through additional mandatory convertible bonds [to boost capital].
SIA full-year results projected S$5.3 billion in capital expenditure in the current financial year to March 31, 2021. This was below previous guidance of S$6 billion in capital expenditure outlined in the company's half-year results published in November 2019.
The company said the fleet renewal program remained "an important part of SIA Group’s strategy for long-term sustainability and industry leadership".
SIA said the prospects for a recovery in international air travel in the months ahead depended on the easing of border controls and travel restrictions.
"There is no visibility on the timing or trajectory of the recovery at this point as there are few signs of an abatement in the COVID-19 pandemic," SIA said.
"The group will maintain minimum flight connectivity within its network during this period, while ensuring the flexibility to scale up capacity if there is an uptick in demand."
SIA has set up an internal task force to review all aspects of its operations to ensure it was "ready to ramp up services when air travel recovers".
"This includes any modifications to our inflight products and end-to-end service delivery to provide additional health and safety assurances to our customers and our crew," SIA said.
In an interview with the Securities Investors Association of Singapore (SIAS) posted online earlier this week, Goh said the aviation industry was well placed to bounce back from COVID-19, noting the experience of the 9/11 terrorist attacks on the World Trade Centre in New York, SARS and the Global Financial Crisis.
While COVID-19 was worse than those three events, Goh said the industry was resilient enough to eventually come through as "the longer-term drivers remain intact and relevant".
"COVID-19 is the greatest challenge ever faced by the aviation industry," Goh said. "We have never seen such a sudden and steep drop in air travel."
"We are looking very carefully and preparing for different scenarios. We have detailed long-term strategies and recovery plans in place.
"SIA's global footprint, the internal talents we have, the committed employee base, strong trusted brands, all these will allow us to capture both the premium and budget segments of the market.
"And our loyal customer base will enable us to be competitive in the post-COVID landscape."
SIA said slumping oil prices, coupled with reduced consumption due to capacity cuts, led to the company being over-hedged on fuel.
"As a result, the group had to record substantial mark-to-market losses of S$710 million on these surplus hedges," SIA said. "Under financial reporting standards, these losses must be recognised in the FY19/20 Profit & Loss Account,” it said.
"The drop in revenue and fuel hedging losses could not be compensated by the savings in non-fuel expenditure from capacity cuts, government support schemes and other cost-cutting measures.
"As fuel prices are likely to remain weak in the near term, the group expects to see further fuel hedging losses."
SIA said it was in positive territory on an operating profit basis for the full financial year. However, the S$59 million result was down 94.5% from an operating profit of S$1.1 billion in the prior corresponding period.
For the fourth quarter, SIA suffered an operating loss of S$803 million compared with an operating profit of S$253 million a year earlier.
(Operating profit, also known as earnings before interest and tax, removed one-off items and was regarded as the best indication of financial performance.)
All SIA's flying businesses suffered an operating loss in the fourth quarter, with the company's engineering unit, SIAEC Group, bucking the trend with a positive operating profit result. The engineering business also managed an operating profit for the full financial year.
Singapore Airlines, which SIA refers to as the parent airline company, achieved an operating profit of S$294.2 million for the full year, down 70% from S$990.5 million in the prior corresponding period. However, the airline posted an operating loss of S$583.4 million in the fourth quarter, from an operating profit of S$203.6 million previously.
Written by Jordan Chong
