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Singapore Airlines incurs 4QFY2014 operating loss, adds premium economy as latest strategic response
CAPA > Aviation Analysis > Singapore Airlines incurs 4QFY2014 operating loss, adds premium economy as latest strategic response
10th May, 2014
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Singapore Airlines (SIA) continues to evolve its long-term strategy in response to challenging market conditions, which drove an operating loss for the group and parent airline for the quarter ending 31-Mar-2014. The decision to introduce a premium economy product on long-haul aircraft from 2H2015 is the latest in a growing string of initiatives aimed at improving the carrier’s position.

SIA has studied premium economy for several years but repeatedly decided against a fourth class of service on long-haul flights. The group now recognises premium economy has become more mainstream and that it is necessary to be competitive, particularly in the corporate sector.

Premium economy will be introduced as SIA starts to retrofit some of its fleet with the new first, business and economy cabin products that were introduced on new 777-300ERs in late 2013. Both initiatives are part of a broader move to continue improving its service standards as competition intensifies. Increased emphasis on partnerships and a more active role in the dynamic Southeast Asian budget sector also have become important components of the still evolving SIA Group strategy.

SIA reports group and parent airline operating loss for 4QFY2014
SIA was able to again report a profit for the fiscal year ending 31-Mar-2014 (FY2014), keeping intact its remarkable record of never incurring an annual loss. But for the third consecutive year the group was in the red on an operating level for its fiscal fourth quarter. The SIA Group incurred an operating loss of SGD60million (USD47 million) for 4QFY2014 compared to an operating loss of SGD44 million (USD36 million) in 4QFY2013 and an operating loss of*SGD5 million (USD4 million) in 4QFY2012.

The group was able to improve its operating profit for the year from SGD229 million (USD184 million) in FY2013 to SGD259 million (USD206 million) in FY2014. But the fact the group’s operating loss widened in the final quarter of the year after recording profit gains in the first three quarters is a discouraging sign and an indication of the challenging outlook for FY2015.

SIA Group quarter by quarter operating profit: FY2014 vs FY2013

Source: SIA Group FY2014 results presentation

On a net level, the group’s profit dropped by 5% to SGD359 million (USD285 million) for FY2014. The net figure was impacted by a SGD96 million (USD76 million) loss from investments in associate companies, with the SGD223 million (USD177 million) loss at the Tigerair Group the primary contributor. SIA has a 40% stake in Tigerair, which has embarked on a turnaround effort that will be headed by new CEO Lee Lik Hsin, a 20-year veteran of the SIA Group.

See related report: Tigerair restructures after recording a FY2014 loss. A Singapore Airlines takeover seems sensible

SIA Group annual net profit: FY2010 to FY2014

Source: SIA Group FY 2014 results presentation

SIA mainline and SilkAir impacted as competition in Asia-Pacific intensifies
SIA mainline was in the red in the fiscal fourth quarter for the second consecutive year, reporting an operating loss of SGD60 million (USD47 million) in 4QFY2014 compared to an operating loss of SGD69 million (USD56 million) in 4QFY2013. SIA Cargo was also in the red while regional full-service subsidiary SilkAir eked out a small profit.

For the full year, SIA mainline saw its operating profit improve by 37% to SGD256 million (USD203 million) but this gain was wiped out*by sister carrier*SilkAir’s 64% decline in operating profit to SGD35 million (USD28 million). SIA Cargo narrowed its losses but still ended FY2014 with an operating loss of SGD100 million (USD79 million). SIA does not provide any financial or operating figures for its other 100%-owned airline subsidiary, Scoot, but the long-haul low-cost carrier is not yet profitable.

SIA Group operating profit by subsidiary: FY2014 vs FY2013

Source: SIA Group FY2014 results presentation**

SilkAir has been impacted by intensifying competition and over-capacity in the regional market within Southeast Asia. SilkAir’s load factor slipped 4ppts in FY2014 to 69.6% and its passenger yield dropped by about 10% (see background information).

SIA has also been impacted by the regional market within Southeast Asia but is more exposed to the over-capacity and intense competition in the Southeast Asia-Australia market. There have been some improvements in the Southeast Asia-Europe market but not enough to offset the decline within Asia-Pacific. Some of*the carrier's*European routes remain unprofitable.

Weak Southeast Asia-Australia market impacts SIA
Point of sale group revenues in Europe increased 5% in FY2014 to SGD1.43 billion (USD1.13 billion) despite relatively flat capacity on European routes. Point of sale revenues in Australia and New Zealand (Southwest Pacific) decreased by 12% to SGD1.46 billion (USD1.16 billion) despite an increase in capacity in the Australian market.

SIA, which is the second largest foreign carrier in Australia after Emirates, has been impacted by a combination of the depreciation in the Australian dollar as well as intensifying competition. Several Southeast Asian carriers pursued ambitious expansion in Australia in 2013 including Malaysia Airlines and AirAsia X.

East Asia revenues,*which includes*SIA's home market of*Singapore and other markets in Southeast Asia and North Asia, were up marginally in FY2014.

SIA Group revenues by area of original sale: FY2014 vs FY2013

Source: SIA Group FY2014 results announcement

Total group revenues were up 1% for the year to SGD15.24 billion (USD12.11 billion), including a 1% increase in SIA mainline revenues to SGD12.48 billion (USD9.92 billion). Mainline RPKs were up 1% in FY2014 while ASKs were up 2%, resulting in a 0.4ppts drop in load factor to 78.9%.

Passenger yields were down 3%*in FY2014, including*1% in 4QFY2014. Monthly yields were down on a year over year basis for 11 of the 12 months in FY2014, a strong indication of the tough market conditions.

SIA monthly passenger yields (including fuel surcharge): Apr-2012 to Mar-2014

Source: SIA Group FY2014 results presentation


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