Air traffic is booming and demand for leisure travel has risen sharply. In Singapore, the number of visitors has reached 5.7 million since the beginning of the year, 90% of pre-pandemic levels.
This message should be music for The (SGX: C6L) or SIA, ears.
The blue-chip airline had just released its results for fiscal year 2024 (FY2024), in which both operating profit and net profit hit new records.
However, SIA’s share price has only risen 3.7% since the beginning of the year and is about 15.8% below its 52-week high of S$8.05.
Can the airline’s record profits bring it back to its 52-week high? We’re going to dig deeper to find out.
A solid performance at the end of the financial year
In fiscal 2024, SIA reported a 7% year-on-year increase in total revenue to S$19 billion, driven by the full reopening of borders in North Asian countries such as China, Hong Kong and Taiwan.
However, total spending increased by 8% year-on-year, mainly due to a 13.5% increase in non-fuel spending.
As a result, operating profit increased only 1.3% year-on-year to S$2.7 billion.
Higher interest income and profit shares from affiliated companies helped SIA’s net profit rise to a record SGD 2.7 billion, up 24% year-on-year.
In the second half of fiscal year 2024 (H2FY24), SIA’s revenue increased 5.3% year-on-year to S$9.9 billion, but operating profit decreased nearly 20% year-on-year to S$1.2 billion due to higher expenses.
The Group announced a final dividend of S$0.38 per share, bringing the total dividend for the 2024 financial year to S$0.48.
This dividend was higher than the previous year’s S$0.38 and SIA shares have a dividend yield of 7.1%.
Record capacity utilization offset by lower freight revenues
Both SIA and low-cost carrier Scoot carried 36.4 million passengers in fiscal year 2024, an increase of 37.6% over the previous year.
The Group’s capacity expanded by 22.9 percent, but passenger volume increased even faster, by 26.6 percent, resulting in a record passenger load factor of 88 percent, an increase of 2.6 percentage points year-on-year.
Although freight volumes increased by 1.7 percent due to continued strong demand for e-commerce, revenues fell by 42.2 percent year-on-year.
Despite the decline, freight yield was still almost 30 percent above pre-pandemic levels.
Expansion of the fleet and route network
SIA has also been busy expanding its fleet while also expanding its route network.
As of March 31, 2024, the airline’s fleet consisted of 200 aircraft with an average age of seven years and three months.
Management expects the Group to have 209 aircraft by the end of the 2025 financial year.
As of May 1, 2024, SIA had ordered a total of 89 aircraft.
With its fleet network, SIA covered 118 destinations in 35 countries as of March 31, 2024.
SIA started flights to Brussels last month and will also fly to London’s Gatwick Airport from June 2024.
Scoot expanded its network to Krabi this month and will soon fly to Koh Samui and Sibu.
These less frequent connections to destinations outside the metropolitan area will enable Scoot to exploit good growth opportunities and fly to additional destinations in the region.
Building the KrisFlyer membership base
In addition to expanding its fleet and network, SIA is also leveraging its popular KrisFlyer loyalty program.
The program has been renamed and is now no longer just an airline frequent flyer program, but a leading lifestyle rewards program.
In the 2024 financial year, SIA had 8.8 million members, an impressive increase of 31% compared to the previous year.
This pool of loyal members will serve the airline well, as it generated revenue of over S$1.2 billion last financial year, up 20% from the previous year.
Several headwinds identified
Although the airline expects continued stable demand for air travel, management pointed to several headwinds for fiscal year 2025.
First, competition has intensified as other airlines have gradually rebuilt their capacity, leading to a decline in passenger yields in the second half of fiscal 2024.
Another headwind is rising costs, as persistent inflation and supply chain disruptions drive up prices around the world.
Geopolitical tensions and an uncertain macroeconomic environment could also pose challenges for the airline and damage consumer confidence, which could lead to falling spending.
These headwinds could become apparent in fiscal year 2025 and cause revenue and profit to deviate from the high base of fiscal year 2024.
Get Smart: Turbulence ahead
Although SIA has reported spectacular earnings for fiscal year 2024, investors are justified in remaining cautious.
The airline faces turbulence in its 2025 financial year as management has identified the various headwinds described above.
The 2024 fiscal year will see huge gains due to the revival of air travel, but this effect may slowly fade in the coming years.
Investors should remain vigilant and expect the airline to experience turbulence in the future.
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Disclosure: Royston Yang has no ownership interests in any of the companies mentioned.
The post “Singapore Airlines reported record profits for fiscal 2024: Can the share price soar?” appeared first on The Smart Investor.
