Singapore Airlines sees path to recovery as Singapore mulls reopening to international travel

Last week, Singapore Airlines (SIA) reported a dramatically narrower net loss of SGD 409 million (USD 302 million) in its first-quarter results for the financial year 2021/22.

This is an improvement of 63.6 per cent from the record loss of SGD 1,123 million it suffered at the height of the COVID-19 pandemic last year. As Singapore reopens its borders, is one of the most admired airlines in the world on its way to wiping away the red ink?

In its business update published on July 29, Singapore's flag carrier revealed that for the quarter that ended in June, revenue rose to SGD 1,295 million from SGD 852 million in the corresponding quarter last year, an improvement of 52.2 per cent.

This was mainly led by "robust cargo performance" and the absence of impairment charges. Expenditure fell by SGD 319 million or 16.9 per cent to SGD 1,569 million.

The airline said in its statement that, "Cargo flown revenue grew by SGD 214 million (+32.4 per cent), as the calibrated resumption in passenger flights contributed to an increase in cargo capacity (+46.9 per cent) and loads carried (+68.2 per cent). Cargo load factor increased 11.3 percentage points to 89.1 per cent, while yields moderated from the exceptionally high levels during the same period last year. Overall, the strong cargo revenue performance for the first quarter reflected the healthy demand fundamentals and an ongoing capacity crunch in the sector."

SIA has no domestic routes and with cross border travel restrictions around the world still, very much in place, passenger load factor increased at a more modest pace of 4.6 percentage points year-on-year to 14.8 per cent.

Passenger capacity at the end of the reporting quarter rose to 28 per cent of pre-COVID levels resulting in passenger flown revenue of SGD 318 million, up by SGD 277 million compared with the same period (April to June) last year when almost all flights were grounded. The number of passengers carried by the group for the quarter which included low-cost carrier Scoot was 362,000, up from 38,000 a year earlier.

The airline added three new Airbus A350s into service in the quarter that just ended and removed two Airbus A330s that were on the lease. As of June 30, the groups' fleet consists of 164 passenger aircraft and seven freighters. With an average age of five years and 11 months, it has one of the youngest fleets in the airline industry.

SIA projects that passenger capacity will reach 33 per cent of pre-pandemic level and that it would serve at least 50 per cent of locations it did before the pandemic by the end of September.

As global COVID-19 vaccination campaigns gather pace, the airline hopes that international air travel demand will soon recover. However, new variants and fresh waves of COVID-19 infections in key markets remain a concern. It added, "The recovery trajectory will be dependent on government regulations, vaccination rates, and the risk profile of individual regulatory authorities."

SIA's planned capacity increase will be helped by the Singapore government's plan to treat COVID-19 as an endemic disease and strategy to reopen the country to travellers.

Although Singapore entered the third lockdown on July 22 (which is scheduled to end August 18), the government this week reiterated its plan to gradually allow its residents to return to their pre-pandemic lifestyle in some form.

However, this will only be for those who are fully vaccinated which it said are better protected against serious effects of the virus. The plan will start taking shape once a high enough proportion of residents are vaccinated and will see a change of emphasis from case numbers to hospitalisation rate.

The latest lockdown was caused by a spike in COVID-19 cases and to ensure a higher portion of its population are vaccinated especially those aged 70 and older.

The vaccination rate among the elderly was significantly below the national average. The authorities expect that around 80 per cent of the population would have been inoculated by early September.

Being fully aware that Singapore's status as a business and tourism hub is at stake and dependent on international connectivity, the government plans to reopen the city state to international travellers in the coming months.

It will allow vaccinated people quarantine-free access to the country although COVID testing may be required. It will start by setting up travel corridors with countries or regions that have vaccinated a high percentage of their population and where the infection is under control.

The number of countries that Singapore will open up to is expected to be small initially and based on its condition that vaccination rates must be high and the virus well-managed, these countries are likely to be in North America, Europe and the Middle East.

It is also likely that in the early stages of reopening, travellers to and from Singapore will have to travel on a point-to-point itinerary given that travellers will not be allowed to transit in a COVID hotspot.

SIA will be a beneficiary from this as many Singapore residents are keen to travel after having been cooped up on their tiny island for more than a year and a half. Furthermore, many expat residents are keen to travel home to their friends and family having not seen them for some time.

On its part, SIA has been quick to add destinations back to its passenger network in spite of low load factor of around 15 per cent.

It is thus in a good position to capture any new demand as Singapore opens as it can boost passenger numbers and revenue without having to increase flights.

If the flights are insufficient to meet demand, it can add more flights as it has excess crew and aircraft capacity. It is also ready to set up new nonstop destinations based on the countries the Singapore government has set up travel corridors with including new long-haul ones.

Although the speed at which the airline will recover is not certain, stock analysts at DBS have upgraded SIA shares to a "hold" from "fully valued", confident that it will be able to ride out the COVID downturn due to its strong balance sheet.

They reasoned that after multiple rounds of fundraising, SIA has about SGD 14 billion of Pro-forma cash balance and that this provides it "with a firm buffer to navigate through the current crisis and fund the capital expenditure for its fleet renewal programme."

(ANI)

Also Read: Several rockets hit Kandahar airport as Taliban-led violence rages