Singapore Airlines Analysis Revision

SingaporeAirline is a leading airline service provider in the South East Asianregion but over the years, the airline provider has experienced mixedresults. This has been mainly due to external environmental factorswhich are beyond the airlines control. For instance, the globalfinancial crisis in 2008-2009 severely affected all major industriessuch as the airline industry [CITATION Sin151 l 1033 ].Other factors that have negatively affected the airline companyinclude a range of issues such as rising oil prices, politicalinstability in some neighboring countries and increased competitionin the airline sector(CAPA, 2015). In addition, the airline company has been grapplingwith some safety concerns after its aircraft went missing a few yearsago while another plane had to make an emergency landing a few monthsago [ CITATION Lin16 l 1033 ].This essay, will analyze Singapore Airline current financial statusbased on their financial report in the year 2015/16. The analysiswill discuss Singapore airlines’ performance in the years 2014 and2015 in regard to five economic indices. The five economic indicesinclude: the available seat per kilometer, the load factor, revenueper kilometer, passenger yield and the number of passengers per year.The analysis will also come in handy making recommendations on theairlines performance and help paint a picture of the company’sfinancial position in the future.

Theairline industry is probably one of the toughest industries tooperate in since the sector is prone to many external factors. Someof the factors which might affect the airlines’ performanceinclude: the threat of terrorism, fluctuating prices of commoditiessuch as oil, the weather and list go on and on. Based on Singapore’sAirline financial report, the airline experienced positive results inthree of the five economic indices while only two indices experiencednegative performance. According to the 2015/16 financial statements,the available seat per kilometer in 2015 was 118,366.50 compared to120,000 million in the previous year. This represented a 1.4% declinein the number of available seats in 2015. In the same year, SingaporeAirlines’ reported a 79.6 passenger load factor which was a 1.10%improvement from the previous year. The passenger load factorappraises a company’s efficiency in relations to its ability togenerate revenue from the occupied seats. The revenue from thepassengers per kilometer in 2015 was $ 94.267 Billion while in 2014,the company reported revenues of $ 94.209 Billion. This represented a0.10% surge from 2014. However, Singapore Airlines reported adecrease in the passenger yield which was computed in cents perkilometer. In 2014, the company reported an 11.20 index on passengeryield, meaning each passenger contributed 11 cents towards thecompany’s profits for every kilometer travelled. In 2015, theairline reported a decrease in the passenger yield by 0.60 centswhich represented a 5.40% decline. The number of passengers carriedby the airline provider improved by 1.6%. In 2014, 18,737,000passengers were ferried by the airline compared to 19,029,000 in thefollowing year [ CITATION Sin16 l 1033 ].

Overall,Singapore Airlines experienced improved results in most areas ofoperation but some areas require improvement. It is evident that someof the indices are interdependent and this might help explain some ofthe reasons for the decline and improvement in other areas. Forinstance, the passenger load factor which assesses the company’sefficiency could be attributed to a decrease in the number ofavailable seat per kilometer. Singapore Airlines also experienced anincrease in the number of passengers carried and also in the revenuepassenger per kilometer. However, there was a slight decline in thepassenger yield per kilometer. This analysis suggests that theAirline provider experienced mixed results. This implies that thecompany might have been efficient due to the decrease in flight fleetbut at the same time the company suffered some inefficiency due toeither increased oil prices or having old aircrafts in their fleet.But overall, Singapore Airlines reported better results in 2015 whencompared to 2014 suggesting that the future looks brighter.

Abrief analysis on the company’s financial statement for the year2014 and 2015 suggests that the Singapore Airlines performed betterin all its major functions [ CITATION Sin162 l 1033 ].For instance, in 2015, the company reported an increase in profits.In 2014, the company’s profit stood at $ 540.5 million compared to$ 672.0 million in the following year. However, the companyexperienced a slight decline in revenues in 2015 when compared to2014. The company’s revenue decreased by 5.9% in 2015 after thecompany reported $ 11. 686 billion as compared to $ 12.418 billion inthe previous year. This shows that the company was more efficient inits operational activities in 2015 when compared with the 2014results. The company may have got rid of some of their assets as thetotal assets in 2015 have decreased when compared to 2014. Thecompany’s assets stood at $ 23,769.7 million in 2015 compared to $23,921.6 in 2014 [ CITATION Sin16 l 1033 ].Despite of all these changes, Singapore Airlines managed to increaseits earnings per share as there was a 119.7% increase in the earningsper share reported. It is also evident that the company shareholderswere equally rewarded for the company’s improved financialperformance as both the interim and final dividends for the year 2015improved when compared to the previous year. Thecompany also increased its network as it increased 3 moredestinations to its flight schedule. The airline now goes toWellington, Dusseldorf and Canberra[ CITATION Sin161 l 1033 ].

SingaporeAirlines has shown significant improvements in some areas of itsairline management but there is still room for improvement. Forexample, the airline reported a slight decrease in the number ofavailable seat per kilometer in 2015 as compared to 2014. This showsthat the company lost some revenue due to limited seats in itsflights. At the moment, Singapore Airlines has a fleet of 102airplanes flying all over the world. However, there seems to be someissues on efficiency that the company is grappling with as suggestedby the passenger load factors and the passenger yield. The passengerload factor improved in 2015 when compared to 2014. This improvementmight have been as a result of getting rid of some assets in the year2015. However, there was a slight decline of $ 0.60 in passengeryield suggesting that the airline operator lost some money due to itsfleet management. Therefore, Singapore Airline should considergetting rid of older airplanes and acquiring newer, more efficientand larger airplanes which will accommodate all of their customers.

Thefuture definitely looks bright for Singapore Airline. The managementhas done a good job in improving its bottom line but more work needsto be done. The airline provider experienced two main challenges inits operations. The number of available seats decline and thepassenger yield dropped significantly. In 2015, the available seatsdecreased by 1.40%. The drop in the number of seats could have beenattributed to a decrease in the number of aircrafts in the company’sfleet as the financial statements suggested that a significant amountof the company’s assets were disposed in the year. The passengeryield on the other hand decreased by a huge margin as the companyreported a 5.4% decrease. The passenger yield represents the amountof revenue collected from every passenger and it is evident that lessrevenue was generated in 2015 as compared to 2014. The $ 0.60 losscould have been attributed to an increase in oil prices or a loss inthe company’s operations. However, the load factor increased by1.10% in 2015 therefore the loss was mostly likely caused by a surgein oil prices. The airline should ensure that there are moreavailable seats for its customers in the future in order to increasetheir revenue per seat. The airline could also increase its networkso as to maximize on the number of seats occupied by its passengers.The management should acquire larger, newer and more efficientaircrafts in order to reap the benefits of efficiency. In addition,the airline should consider hedging their position in the commoditiesmarket by locking in low prices for oil in order to avoid any furtherlosses due to fluctuating prices. Singapore Airlines is still one ofthe leading airline providers in south Asia however, they need lookout for increased competition from their neighboring countries.

Reference

CAPA.(2015, May 18). SingaporeAirlines outlook brightens as profits, yields improve. Newconnectivity strategies emerge.Retrieved August 19, 2016, from CAPA:http://centreforaviation.com/analysis/singapore-airlines-group-improves-as-profits-yields-improve-new-connectivity-strategies-emerging-224825

Lindh, C. (2016, June 27). Singapore Airlines plane catches fire after emergency landing. Retrieved October 2, 2016, from CNN: http://edition.cnn.com/2016/06/27/asia/singapore-airlines-engine-fire/

Singapore Airlines. (2015). The Path of Progress: Annual Report FY 2014/2015. Retrieved October 1, 2016, from Singapore Airlines: https://www.singaporeair.com/saar5/pdf/Investor-Relations/Annual-Report/annualreport1415.pdf

Singapore Airlines. (2016). Strengthening a Position of Leadership: Annual Report FY2015/16. Retrieved August 18, 2016, from Singapore Airlines: https://www.singaporeair.com/saar5/pdf/Investor-Relations/Annual-Report/annualreport1516.pdf

Singapore Airlines. (2016). Strengthening of a position of Leadership: Annual Report FY 2015/16. Retrieved October 2, 2016, from Singapore Airlines: https://www.singaporeair.com/saar5/pdf/Investor-Relations/Annual-Report/annualreport1516.pdf

Singapore Airlines. (2016). Sustainability Report. Retrieved October 2, 2016, from Singapore Airlines: https://www.singaporeair.com/saar5/pdf/Investor-Relations/Annual-Report/sustainabilityreport1516.pdf