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Singapore Airlines Hits Record Revenue, But Profits Plunge In 1H FY2025/26 — What’s Going On? · Investor Exchange

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  Time for another Investor Exchange Podcast. Here are your hosts, Matt and Sally.
• 0:07
  Welcome back to the Deep Dive. Today, we're cutting through the noise of corporate reports.
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  Getting straight to what you need to know. We are flying high with the Singapore
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  Airlines Group, looking at their performance for the first half of the financial
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  year, which wrapped up on September 30, 2025.
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  And our mission today is really to solve a bit of a financial mystery.
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  Because if you just glance at the headlines, you see this spectacular drop in net profit.
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  I mean, down nearly 68%. Oh, wow.
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  60%. But at the same time, the core business looks incredibly strong.
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  Exactly. record-breaking operational performance. So we need to explain that divergence.
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  Why was the business so strong, but what on earth caused the bottom line to,
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  well, to collapse? Right.
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  This period delivered a record for first half revenue, which shows just how
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  strong the travel market is.
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  But that net profit number, a $500 million drop, it just screams alarm.
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  It's a perfect example of why you can't stop at the headline figure.
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  The engine is humming, you know, but something external is hitting the brakes hard.
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  Okay, so let's unpack this. We have to start with the good news with that top line. Let's do it.
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  Group revenue for the half year hit a record, $9.67 billion.
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  That's up about, what, 1.9%? It is.
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  And that record is really a testament to just how robust the demand for air travel still is.
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  Operationally, the numbers are stellar. They carried almost 21 million passengers.
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  That's an 8% jump from last year.
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  And while they expanded capacity by 3%, traffic growth actually outpaced that
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  at 4.6%. And when traffic growth beats capacity expansion, that's the magic
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  formula we look for, right?
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  It all comes down to the load factor. Precisely.
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  It pushes the passenger load factor, basically how full the planes are,
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  up 1.3 percentage points.
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  It hit 87.7%. That is a consistently near full plane. It just sounds like a
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  dream for an airline, but this is where the competitive reality really starts
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  to bite, even with planes that fall.
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  The money they made per passenger, the yield, actually went down.
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  It fell 2.9%. And that, to me, is the clearest signal yet that competition is back in a big way.
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  They're filling seats, but they're having to fight harder on price to do it.
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  It's a fascinating squeeze, isn't it?
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  Demand is high, but that pricing power is eroding.
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  And if you look over at the cargo business, the story is even sharper.
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  Cargo revenue declined by about $31 million, and yields fell over 4%.
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  And what about the split inside the group between the main Singapore Airlines
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  brand and the budget carrier, Scoop?
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  Right. That's a crucial detail. The full-service carrier, the main brand,
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  posted a really strong operating profit of $840 million.
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  But Scoot swung into a pretty significant operating loss of $39 million.
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  A loss. Last year they were profitable? What happened there?
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  Well, last year they made about $7 million.
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  The report mentions that Scoot expanded aggressively. I think it was into 12
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  new destinations. Twelve.
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  That's a lot. It's a huge number. And when you launch that many new routes so
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  quickly, you get these big upfront cost marketing, training fees,
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  and it just it takes time for those routes to mature and actually become profitable.
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  So the scoot loss isn't so much a failure, but more of a growing pain from that
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  aggressive expansion. That's how I'd interpret it. Yes.
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  Now, that brings us to expenditure, which is why the overall operating profit
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  managed to stay stable despite all these pressures. Okay, so costs.
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  Total expenditure was up 2%, but the story is really about what's happening
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  inside that number. Exactly.
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  The big relief came from fuel.
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  Net fuel cost actually fell 6.7%. That's a saving of about $183 million.
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  And that was driven by lower global oil prices, right? It was.
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  Prices contracted about 12.7%.
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  And this is the important part, they didn't get that full benefit.
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  Why not? Two big reasons.
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  First, they were flying more, so they used more fuel, which added costs.
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  But second, and more critically, there was a $143 million swing in their fuel hedging.
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  Ah, hedging. They went from a gain last year to a loss this year.
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  So that hedging strategy, which is meant to be an insurance policy,
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  actually cost the money this time around.
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  It limited the benefit they got from the lower market prices.
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  Precisely. And while fuel provided some, you know, modest relief,
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  the real pressure cooker was non-fuel spending.
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  Let's talk about that. That shot up almost 6%. An extra $353 million in costs.
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  And this isn't just about flying more. It's systemic inflation hitting every
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  single part of the operation.
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  Yeah, I saw some of those numbers. Things like landing and parking charges were up over 10 percent.
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  Handling charges up over 8 percent. These are costs they have very little control over.
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  They really don't. They're set by airports, by governments, by third party suppliers.
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  So if you put it all together.
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  OK, so you've got resilient revenue, some fuel savings that were mostly canceled
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  out by hedging, and then this relentless non-fuel inflation.
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  And the result is an operating profit of $802.9 million.
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  It's up, but only just less than 1%. It shows real operational discipline just
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  to hold the line. Tremendous resilience.
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  Okay. But this brings us to the heart of the paradox.
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  With an operating profit that was basically flat. Yeah.
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  How on earth did the net profit fall by 67.8%?
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  A drop of half a billion dollars. This is the core of the story.
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  And that massive $500 million gap is dominated by two huge non-operating drags.
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  The biggest one, by a huge margin, was the results from their associated companies.
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  Associated companies. That single line item swung from a $41 million profit
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  last year to a staggering loss of $375 million this year. Wow.
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  That's a $417 million difference.
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  And we know what that's about. We do. It's almost entirely their strategic investment
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  in Air India. But help our listener understand, why did this suddenly become
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  such a massive drag right now?
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  It's all about timing and a bit of financial jargon. Yeah. Equity accounting.
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  So historically, they had a stake in Vistara, which was doing well.
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  Then they began the process of merging Vistara into the much larger Air India
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  group, where they now own a 25.1% stake.
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  Crucially, they only started equity accounting for Air India's results in December of 2024.
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  Okay, let's break that down. What does equity accounting actually mean here?
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  It means that because they own a big chunk of the company, they now have to
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  report their share, 25.1% of Air India's actual profits, or in this case,
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  losses, directly on their own income statement.
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  And Air India is losing a lot of money right now. It's bleeding cash.
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  It's in the middle of a massive, incredibly expensive transformation,
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  buying planes, upgrading everything.
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  So Singapore Airlines is absorbing a quarter of those huge losses.
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  Got it. And because they only started this in December 2024,
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  the numbers from last year didn't have any of that Air India loss.
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  It only had the Vistara profit.
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  Exactly. The comparison is just brutal. Last year's numbers were clean and this
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  year's have a full dose of these massive transformation costs.
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  It's a planned hit, but it's a huge one. Okay, that definitely explains the
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  biggest piece of the puzzle. What was the second factor?
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  The second was their net interest position. Last year, they had net interest income.
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  This year, it swung to a net interest expense. So they were earning less on their cash. A lot less.
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  Interest income fell by over $100 million, partially because they have less
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  cash on hand after paying dividends and debt, and partially because interest
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  rates have started to come down. So it's a double whammy.
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  A massive new strategic loss from Air India, combined with less income from their cash pile.
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  But the group seems completely committed to this Air India strategy,
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  despite the short-term pain. Absolutely.
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  The commitment is unwavering. I mean, India is on track to be the world's third
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  largest aviation market.
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  They are deliberately taking this huge financial hit now to secure deep,
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  long-term access to that market. Which brings us to the balance sheet.
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  They can only afford to do this because their financial position is so strong.
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  Immensely strong. They've been very disciplined. Total debt fell by $2 billion.
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  The debt-to-equity ratio improved to a very healthy 0.7. And what about their cash position?
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  Well, cash did decline by $1.8 billion down to $6.4 billion.
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  But this was all controlled, you know, deliberate.
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  They paid out a big final dividend, almost a billion dollars there.
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  They had capital expenditure of over $700 million, and they paid back another $700 million in debt.
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  And crucially, they offset a lot of that by generating $1.6 billion in cash
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  just from their regular operations. That's the engine room.
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  And their total liquidity is even better.
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  Beyond that immediate cash, they have another $2 billion in long-term deposits.
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  And access to over $3 billion in credit they haven't even touched,
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  the cushion is exceptional. And they're using that strength to reward investors,
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  which, given that net profit drop, is a pretty bold statement of confidence.
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  It really is. They announced a special dividend package, 10 cents a share annually for three years.
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  For this half year alone, they declared a total of 8 cents per share.
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  So even while they're absorbing the Air India loss and planning massive spending,
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  they're still returning significant cash to shareholders. And that signals extreme confidence.
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  They clearly see the Erendia drag as temporary, but their core airline's cash
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  flow as permanent and sustainable.
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  Let's talk about that future then, the outlook. What's the short-term picture for the rest of the year?
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  Short-term, demand looks resilient. They're heading into the year-end peak travel
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  season, so that's good news.
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  They'll continue to be proactive in managing their network to maximize revenue.
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  But they're still flagging all the usual headwinds. Oh, yes.
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  Geopolitical tensions, macroeconomic uncertainty, and especially those persistent
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  inflationary cost pressures and supply chain constraints, those aren't going
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  away. And to navigate that, they are planning to spend a lot of money. A huge amount.
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  Their capital expenditure is projected at $3.5 billion for the full year. $3.5 billion. Wow.
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  Why so high, especially now? Well, they're growing the fleet from 208 to 218 aircraft by March 2026.
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  But it's also about product. This includes that $1.1 billion project to completely
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  upgrade the cabins on 41 of their long-haul planes.
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  That's the product leadership pillar they're always talking about.
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  No, it is. They're also rolling out new satellite connectivity for much better in-flight Wi-Fi.
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  They know they can't sacrifice the premium customer experience that justifies their ticket prices.
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  So if we put this all together for you, what does it mean?
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  The knowledge we've distilled is that Singapore Airlines is operationally very
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  robust, but that strength is being completely overshadowed by these non-operating
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  headwinds, overwhelmingly from that strategic long-term bet on Air India.
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  The underlying story is a healthy, cash-generating core business that is deliberately
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  absorbing a huge, predictable financial burden.
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  And they're using their incredibly strong balance sheet to do it all at once,
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  invest in the future, absorb the strategic hit, and reward shareholders.
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  Which leaves us with a provocative thought for you to take away.
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  Given this unwavering commitment to their high-growth strategy in India,
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  how much short-term net profit pain is too much to tolerate for that future market access?
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  That is the massive strategic trade-off for you to mull over as this story develops.
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  It's the classic friction between long-term strategy and short-term financial
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  reality. It really defines the game in modern aviation.
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  We hope you enjoyed this deep dive. Until next time.