Highlights
- Strong post-covid recovery, posting a record revenue of SGD 19.0 billion with operating margins of 14.3%.
- Record high passenger load factor of 88% in FY23/24 with Available Seat Kilometer (ASK) back to pre-pandemic levels.
- One of the lowest leverage levels among peers at 0.4x Net Debt / LTM EBITDA and net gearing of 9.5%. Supported by strong liquidity with SGD 11.2 billion cash on hand, generating net interest income for FY23/24.
- Investors can consider the shorter duration SIASP 3.000% 20Jul2026 Corp (USD) at 5.3% YTM.
Company Background
Singapore Airlines (“SIA”) is the flag carrier of Singapore and is majority-owned by Temasek Holdings (56%). It is listed on the Singapore Exchange with a market cap of over SGD 20 billion and is renowned for its superior service, having been awarded the world’s best airlines 5 times.
The group’s business consists of 3 main companies which are Singapore Airlines – full-service carrier (FSC), Scoot - low-cost carrier (LCC) and Singapore Airlines Engineering Company (SIAEC) - aircraft maintenance, repair and overhaul (MRO). Both their FSC and LCC also operates air cargo services. The lion’s share of operating profits comes from their FSC, representing 96.6% while their LCC contributed 4.3%.
Post-covid recovery surpassing pre-pandemic levels
SIA posted a record revenue in FY23/24 of SGD 19.0 billion, marking a 7% growth from the previous period. This is on the back of robust travel demand amidst the reopening of borders and travel recovery. However, operating profit only saw a slight uplift of 1.3% YoY despite record revenue, owing to higher non-fuel expenses as the group continues to ramp up capacity to pre-covid levels. On the other hand, net fuel cost declined slightly despite a higher uplift in volume, contributed by lower average fuel prices in FY23/24.
Table 1: Profitability
FYE 31 March | FY19/20 (pre-pandemic) | FY22/23 | FY23/24 |
Revenue (SGD Million) | 15,975.9 | 17,774.8 | 19,012.7 |
Total Expenses (SGD Million) | 15,916.8 | 15,082.7 | 16,285.2 |
Operating Profit (SGD Million) | 59.1 | 2,692.1 | 2,727.5 |
Operating Profit Margin (%) | 0.4 | 15.1 | 14.3 |
Source: Singapore Airlines, iFAST compilations. Data as of 31 March 2024. | |||
Key operating metrics for their passenger transport business shows that demand for travel remains healthy as SIA managed to record a Passenger Load Factor (PLF) of 88%, representing a 2.6% increase from the year prior and much higher than the 82.6% recorded in FY19/20. However, Revenue per Available Seat Kilometer (RASK) dipped 4% to SGD 9.6 cents. Nevertheless, comparing operating metrics against pre-covid numbers, we see that overall operations has improved.
On the other hand, cargo revenue dipped significantly YoY by SGD 1.48 billion in FY23/24 as yields dropped 42.2% to 39.6 cents/ltk. However, management has indicated that it is a normalization to pre-covid levels as seen in FY19/20 cargo yield of 30.5 cents/ltk. Cargo load is expected to slightly improve, likely due to flow of cargo from sea to air arising from disruptions in the Red Sea and we have seen some of the effects of this as cargo load factor improved to 58.6% in April 2024.
Table 2: Operating Metrics
FYE 31 March | FY19/20 (pre-pandemic) | FY22/23 | FY23/24 |
Available Seat Kilometer (ASK)(billion) | 171.2 | 133.0 | 163.5 |
Passenger Load Factor (PLF) (%) | 82.4 | 85.4 | 88.0 |
Revenue per Available Seat Kilometer (RASK) (Cents) | 8.2 | 10.0 | 9.6 |
Cargo load factor (%) | 59.3 | 57.4 | 54.5 |
Cargo yield (cents/ltk) | 30.5 | 68.5 | 39.6 |
Source: Singapore Airlines, iFAST compilations. Data as of 31 March 2024. | |||
Strong balance sheet with one of the lowest leverage levels among peers
Among selected peers, SIA has the lowest leverage levels, with Net Debt / LTM EBITDA of 0.4x, indicating a strong coverage of debts with earnings. Meanwhile, with the large cash pile, net gearing for the group is one of the lowest in the industry.
Chart 1: Selected Airlines Net Debt / LTM EBITDA (x)
The group has ample liquidity to meet debt obligations and capital expenditures, with an overall strong cash flow from operations in FY23/24 of SGD 5.0 billion paired with substantial cash and bank balances of SGD 11.2 billion in FY23/24. Furthermore, in FY23/24 they were able to generate interest income of SGD 631.7 million that is more than sufficient to cover their interest expense of SGD 424.5 million, netting them SGD 207.2 million in interest income.
The group has also projected capital expenditures of SGD 3 billion in FY24/25 and will further increase to SGD 4.5 billion in the following year. Nevertheless, we believe with their strong operating cash flow, large cash pile and an additional SGD 2.9 billion in committed credit lines, the group will have no issue meeting both their capex and debt obligations.
Table 3: Selected Credit Metrics
FYE 31 March | FY19/20 | FY22/23 | FY23/24 |
Total debt and lease liabilities (SGD Million) | 12,191 | 15,337 | 13,448 |
Cash and bank balances (SGD Million) | 2,685.3 | 16,327.6 | 11,268.8 |
Operating cash flow | 2,731.9 | 9,130 | 5,054 |
Net Gearing (%) | 97.2% | Net cash | 9.5% |
Cash / short-term debt and lease liabilities | 0.9 | 5.2 | 7.3 |
Source: Singapore Airlines, iFAST compilations. Data as of 31 March 2024. | |||
Merger with Air India
The planned merger between Air India and Vistara has received relevant approvals and will likely be completed by the end of 2024. Vistara is a joint venture of Tata Sons Private Limited and SIA, where SIA owns a 49% stake in the airline.
The merger will see SIA owning a 25.1% stake in Air India, forming an enlarged Air India Group and becoming the second largest airline with a market share of 25%. The transaction will see Singapore Airlines investing SGD 250 million, with a risk of further capital injections post-merger. Nevertheless, the merger is part of SIA strategy to tap into the potential of India’s air travel growth and potentially making India a hub for the group. The CEO of SIA, Goh Choon Phong has also provided his believes on the potential of India’s air market as it remains significantly underserved
Outlook for air travel remains healthy
Singapore Airlines is continuing its efforts to increase capacity as travel demand remains healthy as the group continues to show healthy PLF of 87.2% in April 2024. However, we expect a slight decline in profits given the expected higher expenses in staff costs as the group continues to ramp up capacity. Furthermore, with the airlines in the Asia Pacific Region continuing to add capacity, we expect more pressure on yields going forward.
The group also maintains its optimism in their China routes with the recent implementation of visa-free travel for Chinese to travel to Singapore. With that being said, travel out of China has not recovered to pre-pandemic levels, and may provide a boost in future growth prospects as it recovers. Nevertheless, the International Air Transport Association (IATA) forecasts an average 3.8% CAGR in world passengers, while anticipating the fastest rise in passenger numbers in the Asia Pacific region of 5.3% CAGR.
Corporate risk
Investors should be mindful that investing in the airline industry includes risks typically inherent in the airline industry. Economic uncertainties, pandemic or natural disasters can significantly affect demand of air travel and negatively affect airline’s profitability. Furthermore, high jet fuel prices can also impact SIA’s profitability and subsequently their debt-servicing ability.
Conclusion
With one of the lowest leverages in the airline industry, SIA balance sheet remains healthy with ample liquidity. Additionally, with the support of Temasek, we believe that SIA credit profile is comparable to peers with an investment grade rating.
Amongst the USD bond issued by Singapore airlines we like the SIASP 3.000% 20Jul2026 Corp (USD) bond for its shorter duration and higher yield. Nevertheless, SIASP 5.250% 21Mar2034 Corp (USD) would be suitable for investors who are seeking a longer duration to lock in yields and for the higher coupon of 5.25%.
Table 4: SIA USD Bonds
Bond Name | Call / Maturity Date (Years to Call / Maturity) | Ask Price | Yield to Call / Maturity (%) |
20 Jun 2026 / 20 Jul 2026 (2.0 / 2.1) | 95.447 | 5.30% / 5.30% | |
19 Nov 2028 / 19 Jan 2029 (4.4 / 4.6) | 92.943 | 5.17% / 5.12% | |
SIASP 5.250% 21Mar2034 Corp (USD) | 21 Jan 2034 / 21 Mar 2034 (9.6 / 9.8) | 103.375 | 4.80% / 4.81% |
Source: Bondsupermart, iFAST compilations. Data as of 13 June 2024. | |||
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