Singapore Airlines (SIA) has reported record earnings of $2.68 billion for FY2024 ended March. The airline will reward shareholders with a final dividend of 38 cents, totalling 48 cents for the year, yielding 7.5%. This is up from the 38 cents for the previous year ended March 2023.
While net profit for the year improved by 24% y-o-y, revenue increased by 7% y-o-y to $19 billion, and operating profit, which excluded one-offs and exceptional items, was up 1.3% y-o-y to $2.7 billion.
The group-wide passenger load factor, an industry metric used to determine how much passenger carrying capacity is used, improved by 2.6 percentage points to hit 88.0%. Together with its low-cost unit Scoot, SIA carried some 36.4 million passengers, up 37.6% y-o-y.
“We had record load factor, revenue, operating profits and net profit in the financial year 2023. And this year, we’re breaking all these records again. But it’s not just financial performance, we’ve done well because we say that we want to continue to be the leader in the industry,” SIA CEO Goh Choon Phong said at the post-results briefing on May 16.
Besides rewarding shareholders with a higher dividend and rewarding its staff with an eye-popping bonus of eight months, SIA plans to redeem the remaining $1.74 billion of mandatory convertible bonds (MCBs) from the total of $9.7 billion issued with the cash generated from the strong recovery in air travel.
For the airline, this move signals the completion of its turnaround from the harrowing effects of the pandemic. The MCBs were part of a $15 billion rescue package led by controlling shareholder Temasek Holdings in 2020 and 2021, to aid the airline as it dealt with border closures and the industry practically grinding to a halt.
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“Our intention to redeem the remaining tranche of the MCBs — and thus the full amount — has come within a timeframe of two to three years; that’s no mean feat,” says Goh.
“By emerging stronger, we managed to achieve two things. We were first off the block when the recovery arrived, and we’ve ensured that as we emerge, we continue to lead the industry... Our recovery to pre-Covid capacity remains ahead of other airlines in the Asia Pacific,” he adds.
While SIA had a headstart, the sustained recovery of the overall industry is something most airlines experienced. This has led to the inevitable return of the stiffer competitive pressure SIA faced in the pre-pandemic days, with other airlines competing on price even as they expanded their own service offerings.
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In a note on May 16, DBS Group Research points out that SIA’s 4QFY2024 numbers were within its expectations. Operating profit for the three months was down 7.2% over the preceding 3QFY2023 and down 19.6% y-o-y to $565 million.
Considering the one-off tax credit that resulted in materially lower tax expenses and impairment charges, DBS estimates that core net income for the full year ended March would have been around $2.5 billion, 2% shy of consensus estimates.
Thus, despite the record FY numbers, DBS keeps its “hold” call and $6.10 target price. “Demand outlook continues to be promising, but pricing compression and cost headwinds are likely to dampen earnings momentum,” reasons DBS.
While SIA has indicated that forward bookings remain healthy, supported by demand for North Asia and Southeast Asia, the airline is bracing itself for “sustained” pressure on margins, given the decline in passenger yields amidst growing passenger capacity in the region and increased costs. Passenger yield for 2HFY2024 dipped 6% y-o-y to 11 cents per km, bringing full-year yield to 10.9 cents per km, down 7.6% y-o-y.
DBS notes that SIA’s ebitda margin has been contracting sequentially and annually to 11.8% in 4QFY2024, from 12% in 3QFY2024 and 15.6% in 4QFY2023. “Hence, while SIA’s earnings should stay above pre-pandemic levels in the current FY2025, we believe core net profits could have peaked in FY2024,” says DBS.
At the briefing, the airline’s management team acknowledges the tougher competition. “Additional capacity has been put in place by other carriers and obviously that will put some downward pressure on us,” says Lee Lik Hsin, CCO of SIA. “But as mentioned by our CEO, we do believe that we are well positioned for the future.”
In addition to continuously enhancing its products and services, the airline closely monitors challenges and opportunities in its key markets while seeking to grow new ones. Although the recovery of flight routes to North Asia has been a major contributing factor to the rebound of passenger traffic, SIA’s key market, China, has not yet seen a complete revival.
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“Although we don’t give capacity guid- ance about the recovery of China, travel into the country has been strong, but travel out of China has not yet recovered to pre-pandemic levels,” says Goh, who expects the 30-day visa-free arrangement between China and Singapore, which took effect in early February just before the peak Chinese New Year travel season, to continue to “provide some lift”.
India is another major market that SIA is targeting. The airline is seeking regulatory approval to merge Vistara, its joint venture with Tata Sons, with Air India. First announced in November 2022, the completed merger would give SIA a 25.1% stake in Air India. When asked, Goh expressed hope that approval will be granted within this calendar year.
Regardless, Goh is optimistic about the merger due to the region’s growth potential. “If you look at India’s landscape today, nobody can deny its growth potential. But if you look at India 10 years ago, while they were grow- ing, I don’t think people would have expected it to be as buoyant as it is today,” he adds.
"Already, it is the third largest travel market in the world, and it is going to be the biggest economy within a decade. How many foreign airlines have been able to directly participate in this market? There are none, and we have made quite the strategic investment to be able to benefit and participate directly,” says Goh.
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