$1 Billion After-Tax Profit Dampened By Gloom
$1 Billion After-Tax Profit Dampened By Prevailing Gloom And Warning Of First Quarter Loss
Singapore Airlines has announced its annual results for the 2002-03 financial year, (ending 31 March) with a S$1.065 billion profit, but has grim expectations for the current first quarter as a result of the downturn in demand caused by SARS.
After a strong performance in the first half of the financial year, results in the second half were affected by developments beyond the SIA Group’s control. The bomb blasts in Bali, the build up to war and the war itself in Iraq caused a severe softening of demand.
While Severe Acute Respiratory Syndrome (SARS) only hit business near the end of the financial year and had little effect on the 2002-03 results, it has since dealt a devastating blow to the aviation industry in East Asia and SIA, among other major airlines. The first quarter of 2003-04 (April to June 2003) is expected to show a loss.
HIGHLIGHTS OF THE GROUP’S PERFORMANCE (all figures are in Singapore Dollars)
- Operating profit S$717 million (-22.4%) - Profit before tax S$977 million (+5.5%) - Tax writeback S$278 million - Profit attributable to shareholders S$1,065 million (+68.6%) - Earnings per share S$0.874 (+68.4%) - Shareholders’ funds S$10,709 million (+8.8%) - Net asset value S$8.79 per share (+8.8%)
The Group’s operating profit dropped 22.4% (-$208 million) to $717 million. Revenue was 12.1% higher (+$1,132 million) at $10,515 million, while expenditure grew 15.8% (+$1,340 million) to $9,798 million. Expenses were higher for staff costs (+$466 million, principally on account of profit-sharing bonus totalling $304 million, versus nil in previous year), aircraft maintenance and overhaul (+$220 million), depreciation expenses (+$121 million), fuel (+$101 million), commissions and incentives (+$91 million), insurance (+$79 million), landing, parking and overflight charges (+$45 million), and rentals on lease of aircraft (+$44 million). Without the provision for profit-sharing bonus, expenditure would have grown at a lower rate of 12.2%, and operating profit would be higher at $1,021 million (+10.4%).
The Group’s operating profit recorded for the first half and second half of the year were $510 million and $207 million respectively.
OUTLOOK FOR 2003-04
The Group started the new financial year under very difficult and uncertain operating conditions. The outlook in the near term is dismal: demand for travel has plunged due to the outbreak of SARS, and to expect any significant improvement in the next two months would be unrealistic. Impact on earnings is likely to be substantial. The Airline will continue to adjust capacity according to demand. Yields are under pressure as airlines embark on fare discounting to stimulate demand. Operating expenditure has been much reduced, and capital expenditure deferred or cancelled except where essential (for example, for safety reasons). Recruitment of new staff has been frozen, and delay in aircraft deliveries are being sought. Wage cuts and staff retrenchments are under discussion.
The Airline is working with industry partners, in particular the Civil Aviation Authority of Singapore, the Singapore Tourism Board, National Association of Travel Agents Singapore, hotels and tour operators to restore confidence in Singapore as a tourist destination and regional hub.
The prospects for cargo are also uncertain. Demand could soften because of reduced economic activity in major markets; however, this would be cushioned by cutbacks in passenger services, resulting in less bellyhold capacity. Cutbacks in freighter capacity cannot be ruled out, if the SARS situation worsens.
The airport terminal services and engineering segments of the Group businesses have not been spared from the downturn. Other airlines have cut frequencies to reduce operating costs.
Although the price of oil has fallen recently, it is unclear whether lower prices will continue. A cut in oil production by the Organization of Petroleum Exporting Countries could reverse the trend. Political unrest in Nigeria and concerns over disruption in oil output will keep price volatility high.
Said SIA Deputy Chairman
and CEO Dr Cheong Choong Kong: “The financial year began
depressingly. With little more than a month left, the first
quarter will almost certainly show a loss. The Group will
need more than bold words to overcome this particular
crisis, its worst ever. But we will not lose heart. We are
already working with others in the travel industry to
stimulate demand for travel. As SARS recedes, we can expect
a gradual return to normalcy. Until then, we will continue
strenuously to reduce costs.”