Morningstar | SIA’s 4Q Results Weighed Down by Geopolitical Uncertainties, FVE Maintained at SGD 11
No-moat Singapore Airlines, or SIA, reported fourth-quarter fiscal year 2018 results that featured 1% revenue growth and 24% operating profit decline. During the fourth quarter, the group experienced an 8% rise in post-hedging fuel cost, which dragged down the group’s operating profit. While overall passenger yield was down 1% compared with the same period last year to 9.4 cents per kilometer, an 8.5% increase in traffic drove the sales increase for the group. Despite some softness seen in the Chinese market, SIA’s forward passenger bookings are tracking positively against the capacity deployment. We maintain our fair value estimate at SGD 11 for Singapore Airlines and view the company’s shares as fairly valued.SIA’s parent airline company booked a solid passenger revenue growth of 7% resulted from strong passenger volume in North Asia and the Americas. Volume growth was driven by a total of 8.1% capacity expansion and a 60-basis point rise in load factor. Improvement in demand for business and premium economy seats have helped to offset adverse foreign currency movements. On the flip side, SIA cargo had a challenging quarter, a reflection of the ongoing trade conditions. Cargo revenue was down 6.6% as load dropped by 6.8% during the quarter. We continue to expect uncertainties surrounding U.S.-China tariffs and Brexit will cloud the demand outlook for cargo.
An improvement in load factor and a reduction in loss-making flights have lifted SilkAir’s fourth-quarter operating profit to SGD 11 million from SGD 3 million in the same period last year. Scoot, however, booked SGD 6 million losses as the carrier aggressively expanded capacity. The group’s plan to integrate SilkAir into Singapore Airlines means several of SilkAir’s routes will be transferred to Scoot. We await to see whether this initiative will produce tangible results for Singapore Airlines.
Due to the grounding of the Boeing 737 MAX 8, SilkAir is putting a temporary halt on
transferring the Boeing 737-800NG to Scoot. As a result, Scoot will be suspending services to four destinations with weak demand over the coming months. Given the relatively small scale of disruption, we do not expect it to have a material impact on SIA’s earnings.
Singapore Airlines is engaged in the business of passenger air transportation. Co. and its subsidiaries have four reportable operating segments as follows: Airline Operations, which provides passenger air transportation; Engineering Services, which is in the business of providing airframe maintenance and overhaul services, line maintenance, technical ground handling services and fleet management programme; Cargo Operations, which is involved in air cargo transportation and related activities; as well as Other, which consists of services provided by Co. and its subsidiaries, such as training of pilots, air charters and tour wholesaling.
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