SIA's 1QFY21 results shows a $1bn loss, no end in sight

Singapore Airlines (SIA) released its 1QFY21 results this evening. SIA reported a 99.5% decline in passenger volumes which led to the headline $1bn net loss. While passenger volumes across its different segments fell by >99%, cargo performed better with a 55% fall in cargo and mail carried. Quite interesting to have your volumes decline by >50% but still be the best performing segment. This goes to show how bad things are for the airline industry. 

Outlook

In its outlook statement, SIA mentioned that the recovery in international air travel is slower than expected and industry experts have continued to revise their projections downward. A full recovery could take 2-4 years according to industry forecasts. For SIA, its own forecasts are that passenger capacity would not reach 50% of pre-Covid levels by the end of FY21 (Mar 2021) and will continue to re-assess its fleet size and network. For the end of 2QFY21, SIA projects that its passenger capacity would be c.7% of pre-Covid levels, a >7x jump from the current levels of <1% of pre-Covid. 

SIA appears more positive on cargo recovery as the reopening of economies and manufacturing plants could imply a greater need for air freight. It is also looking to deploy cargo-only passenger flights when justified. SIA currently has 7 freighters and 33 passenger aircraft that are deployed on cargo-only services. 

When the recovery comes possibly in 2022, SIA will also have to bear the extra maintenance costs of getting their parked aircraft back to air-worthy shape. It currently has 119 aircraft parked at Changi Airport and 29 in Alice Springs. I also do hope that by 2022, most of SIA's high fuel hedges have worn off and SIA can start getting better margins. 

On the bright side, SIA has raised $8.8bn from the rights issue and secured other lines of financing worth c.$2.2bn since Mar20 and this could put it in a better shape vis-a-vis competitors who may not have the backing of a strong parent. We have also seen other airlines like AirAsia having going concern issues and this could be a slight positive when the recovery does come for surviving airlines. 

Overall, I believe that this set of results is more negative than expected and could lead to a further softening of SIA share price.