The Singapore Airlines (SIA) Group posted record revenue of SGD16.3 billion ($12 billion), up 3.2% year-over-year (YOY) for its 2018-19 fiscal year. However, the group—including LCCs SilkAir and Scoot—saw net profit fall 47.5% YOY to SGD683 million from SGD1.3 billion in financial year 2017/18.

SIA points the decline to increased expenditure in 2018, primary because of the rising costs of fuel, which jumped 25%. Operating costs rose 7% YOY to SGD15.3 billion with fuel taking up SGD4.6 billion.

The Star Alliance member added that net finance charges increased SGD45 million, as the group raised more borrowings during the year for aircraft purchases.

“There was also a SGD60 million charge in relation to SilkAir’s refleeting costs for its transition from an Airbus to Boeing fleet, and restructuring costs incurred in preparation for the carrier’s integration into SIA,” it said in the report.

Parent airline SIA managed to achieve SGD991 million in profits, although down 35% YOY. It also saw an increase of SGD149 million in non-fuel costs, because of expansion in operations and increase in staff strength. Overall, RPKs were up 7% YOY, outpacing capacity growth of 4.5%; thus the flag carrier saw its best load factor at 83.1%, up 2 points.

The month-long suspension of the Boeing 737 MAX 8 came late into LCC SilkAir’s financial year, and made little dent to the SGD15 million profit, although a SGD29 million reduction YOY.

Only LCC Scoot failed to earn in 2018, which lost SGD15 million, reversing its SGD78 million profit made in the year-ago period.

SIA said Scoot’s poor result was because of its expansion outweighing revenue growth, and performance was substantially affected by the slowdown in the rate of growth of Chinese travel. Capacity injection of 15.1% YOY outpaced passenger traffic at 14.6% YOY, and yields weakened with services mounted by new competitors on several routes.

SIA also acknowledged that Scoot’s performance has also been affected by an “unusual level of operational disruptions,” largely relating to 787 engine issues.

Technical issues, like the 737 MAX 8 grounding and Rolls-Royce Trent 1000 engines issues, forced SIA to readjust its passenger capacity growth to 6% in the coming year. The grounding has also derailed SIA’s plans to transfer SilkAir 737-800 aircraft to Scoot as part of the latter’s expansion plans.

SIA is wary of the supply risk in the oil market and expects fuel prices to remain high.

“However, the SIA Group’s significant fuel hedges should help to mitigate the effect of higher fuel prices. For the financial year 2019/20, the group has hedged 64% of its fuel requirement in MOPS and 5% in Brent at weighted average prices of $76 and $53 per barrel, respectively,” it added. “Longer-dated Brent hedges with maturities extending to the financial year 2024/25 cover up to 46% of the group’s projected annual fuel consumption, at average prices ranging from $58 to $63 per barrel.”

Chen Chuanren, chuanren@purplelightvisuals.com