Financial Analysis: Singapore Airlines

Description of the company

Singapore Airlines started its activities in 1972, when Malaysia-Singapore Airlines (MSA) split into the two entities (the other firm was Malaysian Airline System). The company operates its business all over the world and provides air transportation services (both passenger and cargo), training, engineering, and tour wholesale opportunities. The Chief Executive Officer of the company is Goh Choon Phong, who was appointed for this position in January, 2011. The headquarters of Singapore Airlines is situated in Airline House, 25 Airline Road, Singapore.

The Singapore Airlines Group comprises of more than 20 subsidiaries arranged to maintain various airline-related services provided by the group. The main subsidiaries of the group are SilkAir, Scoot, SIA Engineering Company, SIA Cargo, and Tradewinds Tours and Travel.

SilkAir and Scoot operate regional and low-cost flights for passengers. SIA Engineering Company provides maintenance, repair, and overhaul (MRO) services for more than 85 airlines on the international market. SIA Cargo strategy is focused on providing cargo services to any possible place in the world. Tradewinds is the tour-operating subsidiary of Singapore Airlines offering travel packages to a range of popular destinations.

The main shareholder of the group is the Singapore-based corporation Temasek Holdings (Private) Limited. Other significant investors include DBS Pte Ltd, Citibank, DBSN Services Pte Ltd, HSBC, United Overseas Bank, and BNP Paribas.

The company is listed on the Singapore Exchange Securities Trading Limited and presented as C6L:SI. The latest closing price of the company’s common stock constituted 10.84 Singapore Dollar, and has been fluctuating between 10.06 and 11.35 over the past 52 weeks.

The development strategy of Singapore Airlines is based on the three “pillars” (Singapore Airlines, 2013). The company intends to maintain: 1. Service excellence; 2. Product leadership; and 3. Network connectivity. Thus, the group’s strategy is customer-oriented and directed on “enhancing customer experience” by all available means. The company conducts “Cabin Retrofit” programs to provide high-class facilities for the transportation services. Besides, Singapore Airlines participates in a range of partnerships to leverage its business opportunities.

Main products and markets

The main services rendered by Singapore Airlines include:

-          Passenger air transportation;

-          Cargo air transportation;

-          Charter air transportation;

-          Airport terminal services and rent;

-          Pilot and other aircraft staff training;

-          Airplane facilities engineering;

-          Tour wholesaling.

The airplanes’ fleet of the company comprises of 102 modern, young (up to six years in exploitation), and fuel-efficient aircrafts.

Singapore Airlines operates in five continent-wide markets. They are as follows: Asia, South West Pacific, the Americas, Europe, and Africa. Due to its excellent service standards, the company is widely recognized and awarded by the international community. In March 2013, Singapore Airlines has been ranked number 31 among the Fortune’s Top 50 World’s Most Admired Companies. 

The operating environment of the company imposes high serial fluctuations in the financial performance and critical dependence on some external factors. First of all, being an air transportation service provider, the company realizes seasonal fluctuations in profits due to the seasonal demand for the passenger flights. Secondly, the firm is highly dependent on the fuel prices, which constitute one of its main expenditures. And, finally, some external factors may occur, that will significantly influence the company’s performance , but cannot be predicted or insured. For example, the eruption of Eyjafjallajökull volcano in Iceland disrupted all airlines transportations globally, and caused cancellation of a large number of flights in the European destination.

Summary of the annual financial reports

Singapore Airlines prepares its financial statements based on the Singapore Financial Reporting Standards and provisions of the Singapore Companies Act, Chapter 50 (Singapore Airlines, 2012). The annual financial reports for the last two years have been audited by the independent audit group, Ernst & Young LLP. The auditors believe that the company’s financial statements provide fair representation of the financial position and operating results of the group.

Financial year of the company is ended on March 31. Issuance of the annual reports is authorized by the resolution of the Board of Directors. The main principle of the company’s accounting policy is the preparation of the statements based on the historical cost evaluation. The reporting currency of the group is Singapore Dollar (SGD).

As the group’s balance sheet’s structure differs from the standard presentation, we will need to perform some calculations in order to provide evidence that the total assets are equal to the shareholders’ equity plus the total liabilities.

The long-term assets include Property, Plant & Equipment, Intangible assets, Subsidiary Companies, Associated Companies, Joint Venture Companies, Long-Term Investments, Other Receivables, and Deferred Account. Summing all these accounts for the year ended March 31, 2012, we obtain 14,837.1 million SGD; for the year ended March 31, 2011, the long-term assets’ amount constitutes 14,765.3 million SGD.

In order to determine the amount of long-term liabilities, we need to deduct the total equity from the balance sheet result. Therefore, for the year ended March 31, 2012, the long-term liabilities constitute 1,018.5 million SGD (equal to the balance sheet result of 16778.0 million SGD less total equity of 13,187.4 million SGD). As for the year ended March 31, 2011, the long-term liabilities are equal to 1,079.2 million SGD.

Therefore, we have the following equations:

Total assets = Shareholders’ equity + Total liabilities;

Long-term assets + Current assets = Total equity + Long-term liabilities + Current liabilities;

As for the year ended March 31, 2011 we have:

14,765.3 million SGD + 9,779.2 million SGD =

14,502.8 million SGD + 1,079.2 million SGD + 6,232.3 million SGD

As for the year ended March 31, 2012 we obtain:

14,837.1 million SGD + 7,205.9 million SGD =

13,187.4 million SGD + 1,018.5 million SGD + 5,265.0 million SGD

We can see that the total assets have declined in the financial year 2012/11 by 10.19%, as compared to the financial year 2011/10 (from 24,544.5 million SGD to 22,043.0 million SGD). This occurred primarily due to the decrease in the company’s total equity at the end of the year.

The volume of total revenues for the years 2012/11 and 2011/10 has remained almost unchanged and equaled to 14,857.8 million SGD and 14,524.8 million SGD, respectively. However, the total expenditures have grown considerably, resulting in the decline of operating profit by 77.51% (from 1,271.3 million SGD in year 2011/10 to only 285.9 million SGD in year 2012/11). The net profit for the year ended March 31, 2012 fell to 396.8 million SGD, which constitutes approximately one-third of the financial result for the previous year. This caused also a decline in the earnings per share from 0.914 SGD in the year 2011/10 to 0.283 SGD in the year 2012/11.

The most sizable deterioration can be noticed on the company’s cash flow statements compared for two years. In the year ended 31 March, 2012, Singapore Airline obtained negative net change in cash flows amounting to 2,761.9 million SGD, while in the previous year the company had positive net cash flows equal to 3,002.8 million SGD. The cash flows from operating activities remained larger than the net profit of the group and constituted 1,702.8 million SGD, which is 48.17% less than the previous year’s volume.

Financial performance analysis

In the following, we will present several financial ratios describing the company’s liquidity position, its solvency and cash flow adequacy, profitability, and market strength. The ratios are based on the company’s data for the last financial year ended March 31, 2012 (year 2012/11), and the previous financial year ended March 31, 2011 (year 2011/10). Sources of the data are: Singapore Airlines Annual Report 2012/11 (89-99) and Singapore Airlines Annual Report 2011/10 (87-97). Financial data is presented in millions of Singapore Dollars.