SIA GROUP: $131 MILLION OPERATING PROFIT IN THIRD QUARTER AMID CHALLENGING ENVIRONMENT

GROUP FINANCIAL PERFORMANCE

Third Quarter 2012-13

The SIA Group recorded an operating profit of $131 million in the third quarter of the 2012-13 financial year, $26 million (-17%) lower than a year ago.

Group revenue fell marginally by $15 million (-0.4%), mainly from lower cargo revenue due to depressed yields (-3.5%) and poorer loads (-10.0%). On the other hand, passenger revenue improved as promotional activities boosted Group passenger carriage by 7.8%, partially offset by lower yields (-5.7%). Group expenditure rose by $11 million (+0.3%) to $3,729 million, largely owing to higher staff and variable costs, partly mitigated by a higher fuel hedging gain.

Group net profit for the third quarter was $143 million, $8 million (+6%) higher year-on-year despite recording lower operating profit. This is due to an increase in non-operating items from surplus on the sale of aircraft, spares and spare engines, and higher net interest income, partially offset by a $20 million provision by SIA Cargo in relation to air cargo civil penalty proceedings in respect of competition law matters in Australia and New Zealand [see Note 2 below].

The operating results of the main companies in the Group for the third quarter of the financial year are as follows:

· Parent Airline Company Operating profit of $87 million ($137 million profit in 2011)
· SIA Engineering Operating profit of $31 million ($28 million profit in 2011)
· SilkAir Operating profit of $34 million ($32 million profit in 2011)
· SIA Cargo Operating loss of $29 million ($40 million loss in 2011)

April to December 2012

For the nine months to December 2012, Group operating profit fell $18 million (-6%) to $273 million.

Group revenue improved $279 million (3%) to $11,431 million, driven by stronger passenger carriage (8.4%), partly offset by weaker yields (-4.2%). Group expenditure increased more, by $297 million (+3%) to $11,158 million, principally on account of higher fuel, staff and variable costs.

The Group posted a net profit of $311 million for the April-December 2012 period, a decline of $63 million (-17%) from the corresponding period in the previous year. Apart from the weaker operating performance, the decrease in net profit was due to lower surplus on sale of aircraft, spares and spare engines, an absence of a return of capital from the redemption of preference shares by an associated company and the provision by SIA Cargo for air cargo civil penalty proceedings, partially offset by higher net interest income.

THIRD QUARTER 2012-13 OPERATING PERFORMANCE

The Parent Airline Company’s 7.4% increase in passenger carriage (in revenue passenger kilometres) outstripped its 4.6% capacity expansion (in available seat-kilometres) in the third quarter of the financial year. Thus, passenger load factor improved 2.1 percentage points to 79.3%.

SilkAir recorded a 3.5 percentage-point drop in passenger load factor to 75.3%, with its 14.2% growth in traffic lagging behind capacity injection of 19.4%.

SIA Cargo’s load factor of 64.8% was marginally higher, as cargo capacity (in capacity ton-kilometers) was reduced by 10.1% while carriage (in load ton-kilometers) dropped by 10.0%.

FLEET AND ROUTE DEVELOPMENT

The Parent Airline Company’s operating fleet remained unchanged at 101 aircraft as at 31 December 2012, comprising 58 B777s, 19 A330-300s, 19 A380-800s and five A340-500s, with an average age of 6 years and 7 months.

SilkAir’s operating fleet remained unchanged at 22 aircraft – 16 A320-200s and six A319-100s – while Scoot’s fleet comprised four B777-200s. SIA Cargo operated 12 B747-400 freighters, after parking one aircraft in December 2012.

The Parent Airline Company will increase frequency to Adelaide and Melbourne during the Northern Summer schedule, which commences on March 31, 2013. This will bring the total number of SIA Group flights to Australia to 133 per week. Services to Fukuoka and Osaka will also increase, from five per week to daily and from 11 per week to twice-daily, respectively. Copenhagen will be served with five flights per week instead of three, while between May 20th and August 11th Singapore-Moscow-Houston frequency will increase to daily, up from the current five flights per week. Non-stop services between Singapore and Los Angeles and between Singapore and Newark will cease, with the last departures in October and November 2013, respectively.

SilkAir will introduce a fifth daily service to both Penang and Phuket in Northern Summer 2013. It also plans to increase flight frequencies to Chengdu, Coimbatore, Danang, Manado, Siem Reap, Wuhan and Xiamen.

Between January and March 2013, the Parent Airline Company and SilkAir will be implementing temporary reductions in frequencies to weaker markets so as to better match capacity to demand during this lull period.

OUTLOOK

The outlook for international air travel demand continues to be challenging and the cargo market remains depressed amid the troubled European economy and the weak recovery in the United States. Loads and yields of both passenger and cargo businesses are expected to remain under pressure, while the price of jet fuel continues to be at a historical high. The depreciation of revenue-generating currencies against the Singapore dollar poses yet another challenge.

The Group remains vigilant, seeking to improve both productivity and operational efficiency, whilst exercising strict cost discipline. To maintain market leadership, the Group will continue to invest in product and service offerings. The Group remains nimble and flexible in aligning capacity to meet demand while pursuing all revenue opportunities.