Latest / Investor Exchange / SIA Group: First Quarter FY2025/26 Financial and Operating Report

Transcript

SIA Group: First Quarter FY2025/26 Financial and Operating Report · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Have you ever looked at a headline about a major company's financials and felt
• 0:11
  like, well, there's a puzzle there.
• 0:13
  You see all these numbers, record sales maybe, but then profit drops,
• 0:17
  rising costs, and you wonder how they actually fit together.
• 0:20
  Today, we're doing a deep dive into exactly that kind of financial mystery.
• 0:24
  We're looking at one of the world's most awarded airlines, imagine this,
• 0:27
  an airline carrying more passengers than ever before, showing real resilience
• 0:31
  in its operations, but then bam, it announces a huge drop in net profit.
• 0:36
  How does that even happen?
• 0:37
  So in this deep dive, we're going to unpack the unaudited financial results
• 0:40
  for the Singapore Airlines group, SIA group, for their first quarter.
• 0:43
  That's the period ending June 30, 2025. The results just came out on July 28.
• 0:47
  All our insights today, they come straight from the source, the official announcement.
• 0:50
  Our mission really is to cut through the jargon and pull out the important stuff.
• 0:54
  We want to help you understand SIA's recent performance, you know,
• 0:57
  get to the bottom of why some numbers look good and others not so good.
• 1:00
  And what's their outlook? Prepare for maybe a few aha moments.
• 1:04
  Okay, kicking us off, the big headline figures from SIA's first quarter,
• 1:08
  they show this fascinating contrast right away.
• 1:10
  On one hand, the group posted what they called a resilient operating profit. That was $405 million.
• 1:16
  And just a quick note, all the money figures today are in Singapore dollars.
• 1:20
  But then you see their net profit. It saw a really significant drop of 59% down to $186 million.
• 1:27
  That's way down from $452 million in the same quarter last year.
• 1:31
  Yet here's the kicker, right?
• 1:32
  Singapore Airlines and Scoot, that's their low-cost carrier,
• 1:35
  they actually flew record numbers of passengers, 10.3 million people.
• 1:39
  That's up almost 7% year on year. So more passengers than ever,
• 1:42
  but a massive drop in net profit. It feels a bit weird, doesn't It really does.
• 1:46
  And that immediate difference you highlighted between operating profit and net
• 1:49
  profit, that's our first big
• 1:50
  clue. It tells us straight away there's more going on beneath the surface.
• 1:54
  Even the term resilient operating profit, it's not just corporate speak.
• 1:58
  It suggests that the core airline business, you know, the actual flying of planes,
• 2:04
  managing operations day to day, it held up pretty well despite challenges.
• 2:08
  It points towards maybe some effective management of the things they can directly
• 2:12
  control, which is vital in aviation. It's such a volatile industry.
• 2:16
  OK, so let's peel back those layers then. How did SIA actually land on that
• 2:19
  $405 million operating profit?
• 2:22
  What were the forces pushing and pulling there? We need to look at both revenue and costs.
• 2:26
  Exactly. Two sides of the same coin. Okay, first up, revenue.
• 2:29
  Total group revenue climbed a bit, $72 million, which is about 1.5% year-on-year.
• 2:34
  It reached $4,790 million.
• 2:37
  The report says demand for air travel and cargo stayed strong,
• 2:41
  despite all the economic and geopolitical uncertainty out there.
• 2:45
  And their passenger load factor...
• 2:48
  Basically, how full the planes were, it actually edged up slightly,
• 2:51
  0.7 percentage points, to 87.6%. That's pretty full.
• 2:54
  This happened because traffic growth, which was 4.1%, was actually higher than
• 2:59
  their capacity expansion of 3.3%. So flying more and planes were fuller. Sounds good.
• 3:04
  On the surface, yes. More demand, fuller planes. That's usually a recipe for
• 3:08
  success. But here's where things get tricky.
• 3:11
  Passenger yields, that's the money they make per passenger, per kilometer flown, actually slipped.
• 3:15
  Down 2.9% to 10.0 cents. Yeah. And the reason, basically more competition.
• 3:20
  Other airlines were adding lots of capacity, lots of seats, flooding the market.
• 3:23
  Right. So even with strong demand, that extra supply puts downward pressure
• 3:27
  on prices on the yields they can command.
• 3:29
  It's a classic supply and demand situation playing out.
• 3:31
  Exactly. So while more people flew SIA, each ticket, on average,
• 3:35
  brought in a little less money. And it wasn't just passengers feeling the pinch.
• 3:39
  Cargo face headwinds, too. Cargo revenue fell $10 million, about 1.9%,
• 3:44
  and the yields there dropped even more, 4.4%. Cargo load factor also dipped slightly.
• 3:49
  That's a critical point. It's not just about total revenue going up slightly.
• 3:53
  You have to look at the yields, the quality of that revenue.
• 3:56
  Slipping yields, even with strong demand.
• 3:58
  That really signals a tough, competitive environment. It means they have to
• 4:01
  work much harder operationally to make up for that lower price per unit. Makes sense.
• 4:05
  Okay, so that's the revenue picture. Some volume growth, but definitely price
• 4:08
  pressure. Now let's flip to the expenditure side.
• 4:11
  Total group spending rose $138 million, or 3.2%, landing at $4,386 million.
• 4:18
  What really drove this increase? It was higher non-fuel costs.
• 4:21
  They jumped quite a bit, $246 million, or 8.5%. And this was mainly down to two things.
• 4:26
  Flying more, so a 3.7% rise in overall capacity means more spending,
• 4:30
  and crucially, inflation.
• 4:31
  Significant inflationary pressures on key costs. Yeah, that inflation piece is hitting everyone.
• 4:36
  And airlines feel it across the board. Airport fees, maintenance,
• 4:38
  staffing, catering, everything. It adds up fast. No kidding.
• 4:42
  But there was some good news on the cost side, surprisingly.
• 4:46
  Net fuel cost was actually lower by 7.9%. That saved them $108 million.
• 4:53
  This was mainly because fuel prices themselves dropped significantly down 16.9%.
• 4:58
  That alone gave them a $252 million benefit compared to last year.
• 5:03
  Like a huge discount at the pump.
• 5:05
  Wow, that's a substantial drop in fuel prices. That definitely helps cushion
• 5:09
  the blow from other rising costs. It does, but it wasn't all gravy.
• 5:12
  That saving was partly offset by a couple of things. First, they used more fuel
• 5:16
  because they flew more, which added $70 million back to the cost.
• 5:19
  And second, fuel hedging. They had a fuel hedging loss this quarter,
• 5:23
  whereas last year they had a gain.
• 5:24
  That swing alone cost them about $109 million compared to the previous year.
• 5:28
  Ah, hedging. It's like insurance, right?
• 5:30
  You lock in prices to avoid spikes, but if the price drops dramatically like
• 5:34
  it did here, your locked-in price can end up being higher than the market rate
• 5:37
  so that insurance actually costs you.
• 5:39
  Exactly. So it's a double-edged sword sometimes. So putting it all together
• 5:43
  on the operating side...
• 5:44
  You've got strong passenger demand, which is great, but yields are down due to competition.
• 5:50
  Non-fuel costs are up significantly because of inflation and flying more.
• 5:54
  But thankfully, fuel prices dropped quite a bit, even with that hedging loss
• 5:58
  partially offsetting the gain.
• 6:00
  It's this complex mix, this balance, that resulted in that resilient operating profit of $405 million.
• 6:07
  It was lower than last year by $65 million. But considering the pressures,
• 6:12
  especially on yields and non-fuel costs, holding on to a profit like that shows
• 6:16
  decent operational management. Right. They navigated those cross-currents.
• 6:19
  But OK, we've figured out the operating profit. Now for the real head-scratcher,
• 6:22
  a massive 58.8% drop in net profit.
• 6:25
  How do you go from a resilient operation to such a steep decline on the bottom
• 6:29
  line? What happened there?
• 6:30
  This is where things get really interesting because it shows the impact of factors
• 6:34
  outside the day-to-day flying operations.
• 6:37
  That net profit didn't just fall because the operating profit was slightly lower,
• 6:41
  though that $65 million reduction was part of it.
• 6:43
  There were two other major non-operating factors that really dragged the net
• 6:47
  profit down significantly.
• 6:49
  Okay, what were they? First, interest income was lower, about $61 million lower.
• 6:53
  This was mainly because the group had less cash sitting in the bank compared
• 6:56
  to last year, and also because interest rates generally have been coming down.
• 7:00
  So, less cash-running interest and lower rates on that cash.
• 7:04
  It hits the non-operating income line directly.
• 7:06
  Okay, so lower interest income, that's one piece. What was the other big one?
• 7:09
  The other one, and this is really the elephant in the room, was a huge negative
• 7:14
  swing related to their share of results from associated companies.
• 7:17
  A $122 million negative swing, to be precise.
• 7:22
  This quarter, SIA recorded a share of losses from these associates.
• 7:26
  Last year, in the same quarter, they'd actually recorded a share of profits.
• 7:30
  Wow, $122 million swing from profit to loss from associates.
• 7:35
  Which associates are we talking about mainly? The report specifically highlights
• 7:39
  that this change was heavily influenced by Air India's financial results.
• 7:43
  And here's the crucial detail.
• 7:45
  Air India's results weren't even in SIA's numbers for this quarter last year.
• 7:49
  SIA only started equity accounting for Air India's performance in December 2024.
• 7:54
  That was after Vistar was fully integrated into Air India.
• 7:58
  Ah, okay. So equity accounting means SIA now has to report a slice of Air India's
• 8:02
  profit or loss on its own books. Exactly.
• 8:05
  Because they own a significant chunk, 25.1%, they have to reflect that proportion
• 8:10
  of Air India's performance, whether it's good or bad, in their own net profit figure.
• 8:14
  And this quarter, it seems Air India had losses that SIA had to account for.
• 8:18
  So you can see how the strategic investment in Air India, while potentially
• 8:21
  great for the long term, is creating some short-term pain on the net profit
• 8:25
  line right now. It's a direct hit. That makes a lot of sense now.
• 8:28
  Those non-operating factors lower interest income, and especially that Air India accounting change.
• 8:34
  They really explain that big gap between the operating result and the final net profit.
• 8:39
  It shows a company's bottom line isn't just about selling tickets.
• 8:42
  But let's look at their overall financial health, the balance sheet.
• 8:46
  Because despite that profit dip, things look pretty solid there.
• 8:50
  Group shareholder equity was strong at $15.8 billion at the end of June,
• 8:55
  actually up slightly from March. Yeah, that's a strong foundation.
• 8:58
  And their total debt, it actually fell by $1.4 billion to $11.5 billion.
• 9:04
  That brought their debt-to-equity ratio down to 0.73, which sounds pretty healthy
• 9:08
  for an airline. Very healthy.
• 9:09
  Lower debt means less risk, more financial flexibility. That's a positive sign.
• 9:14
  Their cash pile did shrink a bit, down half a billion to $7.8 billion.
• 9:18
  But the report explains this was mainly due to paying back debt,
• 9:21
  about $0.8 billion, which is good, and capital expenditure, spending $0.4 billion
• 9:26
  on things like new planes. Investing in the future, essentially.
• 9:30
  Right. And importantly, their core operations still generated a lot of cash,
• 9:34
  $1.2 billion in net cash from operations this quarter.
• 9:38
  So the underlying business is still churning out money.
• 9:42
  Plus, they still have access to another $3.3 billion in credit lines if they need it.
• 9:46
  So liquidity isn't an issue. It really seems like one of the strongest balance
• 9:50
  sheets in the industry. Absolutely.
• 9:51
  And that strong balance sheet is critical. It's the bedrock of their resilience.
• 9:56
  While net profit took a hit from those specific non-operating items like Air
• 10:00
  India and interest rates, having such a strong financial position means they can absorb those hits.
• 10:05
  They can navigate these challenges, continue investing in their strategy new
• 10:09
  planes, partnerships without being financially crippled.
• 10:12
  It signals underlying strength despite the headline profit drop.
• 10:16
  Okay, so we've unpacked the past quarter. What about the road ahead?
• 10:18
  How is SIA positioning itself to navigate this, well, pretty dynamic environment and keep growing?
• 10:24
  Let's talk strategy, fleet, network.
• 10:27
  Right, the future focus. First, the fleet.
• 10:29
  As of June 30th, they had 204 aircraft operating passenger and freighter.
• 10:35
  The average age is only seven years, nine months. That's pretty young for an
• 10:39
  airline fleet, isn't it? Very young. That's a significant competitive advantage.
• 10:43
  Younger planes mean better fuel efficiency, lower maintenance bills,
• 10:47
  and usually a better experience for passengers.
• 10:49
  It helps on both the cost and revenue sides. And they're not stopping.
• 10:53
  Scoot just added three new planes, an A321neo, a 7A78, and one of those new Embraer E190E2s.
• 11:01
  Plus, the group has another 72 aircraft on order. That's a serious commitment
• 11:06
  to expansion and renewal.
• 11:07
  Definitely signals long-term confidence in growth plans. That's a big order
• 11:10
  book. And the network is growing too.
• 11:12
  Scoot launched new routes, Iloilo in the Philippines, Vienna and Austria recently,
• 11:16
  and they've got more coming up.
• 11:18
  Da Nang in Vietnam, Kota Bharu in Malaysia, Nahad Ring in Vietnam later this
• 11:22
  year. Plus, here's an interesting reaction.
• 11:24
  Jetstar Asia closed down at the end of July.
• 11:27
  SIA Group is immediately ramping up capacity to places like Malaysia,
• 11:30
  Philippines, Sri Lanka, Thailand to fill that gap and keep the Singapore hub
• 11:34
  strong. That's an agile move.
• 11:36
  Seizing an opportunity created by a competitor's exit to strengthen their own
• 11:40
  position and connectivity through Chanji.
• 11:42
  It reinforces their hub strategy.
• 11:45
  Yeah, and that includes new scoot services to places like Labuan Bajo,
• 11:49
  Medan, Okinawa, pending approvals.
• 11:52
  So definitely dynamic on the network front.
• 11:54
  Beyond the core flying, what about other strategic moves? They mentioned decarbonization.
• 11:59
  Signed deals with Nest and World Energy for sustainable aviation fuel SAF,
• 12:03
  expected to cut over 9,500 tons of CO2.
• 12:07
  That's increasingly important not just environmentally, but also for reputation
• 12:11
  and potentially future regulations.
• 12:13
  Investing in SAF now is strategically smart, even if it's more expensive currently.
• 12:17
  And partnerships seem key, too. They got conditional approval for that joint
• 12:20
  venture with Malaysia Airlines.
• 12:22
  The idea is better value, more options for customers, boosting tourism for both countries.
• 12:26
  A classic airline alliance play. aiming for network synergies and broader market reach.
• 12:31
  They also teamed up with Mandai Wildlife Group. You're in Singapore.
• 12:35
  A three-year deal to promote Singapore as a destination, offer wildlife experiences,
• 12:40
  support conservation, sort of diversifying the appeal.
• 12:44
  Interesting tie-up, leveraging local attractions to enhance the destination's pull.
• 12:49
  And of course, they reiterated their commitment to the multi-hub strategy,
• 12:52
  including that big stake in Air India, supporting its transformation despite,
• 12:56
  you know, the current losses hitting their books.
• 12:59
  They're clearly playing the long game there. Absolutely.
• 13:02
  That Air India investment is a major strategic bet on the future growth of the Indian market.
• 13:07
  It requires patience and comes with these short-term accounting impacts,
• 13:11
  but the potential payoff down the line could be huge.
• 13:14
  So looking at the overall outlook then, what's the vibe?
• 13:18
  Well, the report suggests demand should stay healthy for the current quarter,
• 13:21
  Q2, mainly thanks to the summer peak travel season in many parts of the world.
• 13:26
  But, and it's a big but, the operating environment remains really volatile.
• 13:30
  You've got geopolitics, macroeconomic shifts, changing competition,
• 13:34
  supply chain issues, lots of potential headwinds. So caution is still a word. Definitely.
• 13:39
  They emphasize being agile, ready to respond to demand changes,
• 13:44
  and keeping a really tight grip on costs.
• 13:46
  That cost discipline is crucial when yields are under pressure.
• 13:50
  Cargo demand is still a bit uncertain, too, with trade tensions and tariffs lingering.
• 13:55
  But having a diverse global network helps spread that risk. So how are they positioned overall?
• 14:00
  They believe they're well-positioned to stay ahead. They point to those robust
• 14:05
  foundations we discussed, the strong balance sheet, their digital capabilities, their people.
• 14:10
  And they're continuing to invest in service, the network, their product leadership.
• 14:16
  So it's a mix of vigilance about the current challenges, but also confidence
• 14:19
  in their strengths and strategic direction to capture future growth.
• 14:22
  It's a balanced outlook, really.
• 14:24
  OK, so let's recap this deep dive into SIA's first quarter. We saw a company
• 14:28
  really navigating a complex picture, didn't we? For sure.
• 14:32
  Operationally, resilience was the word. Record passenger numbers helped by lower fuel costs.
• 14:36
  But at the same time, pressure from falling yields because of competition and
• 14:40
  rising non-fuel costs from inflation.
• 14:42
  A real mixed bag on the operating front. And that big net profit drop,
• 14:46
  mostly driven by non-operating stuff, lower interest income,
• 14:50
  and crucially, that accounting impact from associates, especially Air India,
• 14:55
  reflecting their strategic investment there.
• 14:57
  That Air India piece was the standout factor for the net profit decline, definitely.
• 15:01
  But despite that hit, their balance sheet looks rock solid.
• 15:05
  And they've got clear strategic moves underway, fleet renewal,
• 15:09
  SF, partnerships, network growth, positioning them for the future.
• 15:13
  So reflecting on all this, what really stands out to you about this quarter?
• 15:17
  Anything particularly surprising about how an airline like SIA operates financially?
• 15:21
  I think what stands out is just how many factors beyond simply filling seats
• 15:25
  influence the bottom line.
• 15:26
  Impact of fuel hedging, interest rates, and especially the accounting for major
• 15:30
  strategic investments like Air India.
• 15:32
  It really shows that running an airline profitably is incredibly complex.
• 15:36
  That resilience in operations despite yield pressure was impressive.
• 15:39
  But the net profit story shows just how vulnerable airlines can be to these
• 15:43
  broader financial and strategic elements.
• 15:45
  Yeah, it's definitely more than just flying planes. So here's a final thought to leave you with.
• 15:49
  Thinking about SIA and really any major airline today, it highlights this constant
• 15:53
  tightrope walk, doesn't it?
• 15:55
  How do you balance delivering the immediate financial results that shareholders
• 15:58
  want now with making these massive long-term, often expensive bets?
• 16:04
  Bets It's on things like decarbonization with ASAF, expanding the network globally,
• 16:09
  integrating huge ventures like Air India, especially when the whole industry is so volatile.
• 16:13
  What's the true long-term impact going to be? Will this short-term pain from
• 16:17
  integrating Air India, for example, really translate into the significant long-term
• 16:21
  gain they're hoping for? It's a huge question mark.
• 16:24
  Music.