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Singapore Airlines Reported Record Profits for FY2024: Can its Share Price Soar?

Singapore Airlines
Singapore Airlines

Air travel is booming with a strong surge in demand for holidays that has seen visitor numbers in Singapore hit 5.7 million year-to-date or 90% of pre-pandemic levels.

This news should be music to Singapore Airlines Limited’s (SGX: C6L), or SIA, ears.

The blue-chip airline had just released its fiscal 2024 (FY2024) earnings that saw both its operating and net profit hit new records.

However, SIA’s share price is up just 3.7% year to date and is roughly 15.8% below its 52-week high of S$8.05.

With the record profits, can the airline reclaim its 52-week high again? We dig deeper to find out.

A solid performance to end the fiscal year

For FY2024, SIA saw total revenue rise 7% year on year to S$19 billion, aided by the full reopening of borders in North Asian countries such as China, Hong Kong, and Taiwan.

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However, total expenses climbed 8% year on year led by a 13.5% year-on-year increase in non-fuel expenditure.

As a result, operating profit inched up just 1.3% year on year to S$2.7 billion.

Higher interest income and share of profits from associated companies helped to push SIA’s net profit to a record of S$2.7 billion, up 24% year on year.

For the second half of FY2024 (2H FY2024), SIA’s revenue rose 5.3% year on year to S$9.9 billion but operating profit fell nearly 20% year on year to S$1.2 billion because of higher expenses.

The group declared a final dividend of S$0.38 per share, taking its total FY2024 dividend to S$0.48.

This level of dividend was higher than the previous year’s S$0.38 and SIA’s shares provide a trailing dividend yield of 7.1%.

Record passenger load factor offset by lower cargo yields

Both SIA and budget airline Scoot carried 36.4 million passengers for FY2024, up 37.6% year on year.

The group’s capacity expanded by 22.9% but passenger traffic increased at a more rapid clip of 26.6%, resulting in a record passenger load factor of 88%, up 2.6 percentage points year on year.

Although cargo loads increased by 1.7% because of continued strong demand for e-commerce, yields plunged by 42.2% year on year.

Despite the drop, cargo yield was still close to 30% above pre-pandemic levels.

Growing both its fleet and network of routes

SIA has also been busy growing its fleet while expanding its network of routes.

As of 31 March 2024, the airline’s fleet comprised 200 aircraft with an average age of seven years and three months.

Management projects that the group will end up with 209 aircraft by the end of FY2025.

As of 1 May 2024, SIA had a total of 89 aircraft on order.

For its fleet network, SIA covered 118 destinations in 35 countries as of 31 March 2024.

SIA launched services to Brussels last month and will begin to fly to London’s Gatwick airport in June 2024.

For Scoot, it expanded its network to Krabi this month and will fly to Koh Samui and Sibu soon.

These thinner routes to non-metro destinations allow Scoot to unlock good growth opportunities to fly to more destinations in the region.

Building its KrisFlyer membership base

Aside from building its fleet and network, SIA is also leveraging its popular loyalty network KrisFlyer.

The programme has been rebranded to become a leading lifestyle rewards programme rather than just being an airline frequent flyer programme.

SIA had 8.8 million members as of FY2024 for an impressive 31% year-on-year jump.

This pool of loyal members will serve the airline well as they brought in more than S$1.2 billion of revenue for the fiscal year, 20% higher than the prior fiscal year.

Multiple headwinds identified

Although the carrier expects demand for air travel to remain firm, management did highlight several headwinds for FY2025.

First off, competition has intensified as other airlines have gradually restored capacity, leading to a decline in passenger yields for 2H FY2024.

Increasing costs are another headwind as persistent inflation and supply chain disruptions push prices up globally.

Geopolitical tensions and an uncertain macroeconomic environment could also pose challenges to the airline and dent consumer confidence, leading to a fall in spending.

These headwinds could manifest themselves in FY2025 and cause revenue and profits to dip off the high base seen in FY2024.

Get Smart: Turbulence ahead

Although SIA reported a spectacular set of earnings for FY2024, investors are justified in remaining cautious.

The airline is heading into turbulence for FY2025 as management identified various headwinds as outlined above.

With FY2024 seeing bumper profits from a resurgence in air travel, future years may see this effect slowly tail off.

Investors should remain vigilant and expect some turbulence ahead for the airline.

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Disclosure: Royston Yang does not own shares in any of the companies mentioned.

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