The wait has been worthwhile for shareholders of Singapore Airlines Limited (SGX: C6L), or SIA.
The airline released a stellar set of financial numbers for its fiscal 2023’s first half (1H2023) ending 30 September 2022 on the back of soaring air travel demand.
SIA investors looking for income are finally getting some reprieve.
We had previously opined that SIA could restart its dividends next year, but the blue-chip carrier did even better.
It has resumed paying out dividends for 1H2023 after a three-year hiatus.
The outlook is bright for SIA even though the airline warned of potential macroeconomic headwinds in the coming months.
Here are some highlights that investors should take note of in the group’s 1H2023 earnings report.
A record-high operating profit
For 1H2023, SIA reported total revenue of S$8.4 billion, tripling the S$2.8 billion clocked in 1H2022.
This strong performance was because of a surge in air travel demand as Singapore reopened its borders to fully-vaccinated passengers.
SIA, along with its sister airline Scoot, was also quick to capture pent-up demand with the launch of Singapore’s Vaccinated Travel Lanes scheme in September last year.
As a result, SIA’s passenger numbers hit 11.4 million for 1H2023, up more than 13-fold from the 828,500 in the same period last year.
An operating profit of S$1.2 billion was generated for 1H2023, the highest ever for the SIA group.
Net profit came in at S$927 million, reversing the S$837 net loss in the prior year.
SIA saw its balance sheet strengthen considerably, with cash and investments totalling S$17.8 billion, up from S$16.1 billion in the first quarter.
The airline also generated a robust operating cash flow of S$4.9 billion along with a free cash flow of S$3.9 billion.
Because of the strong cash generation, the carrier will use S$3.86 billion to fully redeem its Mandatory Convertible Bonds that were issued in June 2020.
It also declared an interim dividend of S$0.10 per share, higher than the interim dividend of S$0.08 that was declared in November 2019, before the pandemic.
Growing its fleet and network
SIA has continued to grow its fleet with the addition of two Airbus A350-900 aircraft to its operating fleet.
The quarter also saw two Boeing 737-8 aircraft rejoin the group’s operating fleet after undergoing a cabin retrofit.
As of 30 September 2022, SIA’s fleet consisted of 131 passenger aircraft and seven freighters with an average age of six years and four months, making SIA one of the youngest and most fuel-efficient fleets in the airline industry.
Meanwhile, the airline also reinstated services to several destinations in Asia such as Shenzhen, Beijing and Fuzhou in China, and Osaka in Japan.
For 1H2023, the group’s passenger network covered 100 destinations in 36 countries and territories while its cargo network served 107 destinations.
Scoot, SIA’s low-cost carrier, will resume flights to Hokkaido via Taipei this month and commence seasonal flights to Kuantan, Malaysia, from November 2022 to February next year.
With the resumption of these routes, group capacity is targeted to reach around 76% in the second half of fiscal 2023.
Collaborations and partnerships
Elsewhere, SIA also announced a collaboration with the Tata Group in India to explore a possible integration of Vistara and Air India.
By doing so, the group can strengthen its multi-hub strategy and help it to extend its presence in one of the largest aviation markets in the world.
On the cargo side, SIA has partnered with logistics company DHL Express to increase the former’s cargo footprint in the e-commerce sector.
This move will help to cement the group’s status as an important international air freight hub.
Buoyant demand tempered by high inflation
Demand is expected to hold up as the group heads into the year-end peak travel season.
The holiday season should also see ticket sales improving for destinations such as Hong Kong, Taipei and Japan.
However, air cargo demand is projected to weaken as macroeconomic headwinds hit consumer demand and importers work to clear high inventory levels.
SIA may have reported a record operating profit, but investors should note that this was on the back of an almost two-year absence in air travel.
Once the pent-up demand peters out, the airline will have to grapple with a mix of high fuel costs, normalised demand and the spectre of a possible global recession.
In addition, high inflation will also raise operating expenses for the group as well as crimp consumer demand for air travel as we head into 2023.
The skies may have cleared up in 1H2023, but there looks to be stormy weather ahead for FY2024.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
