Singapore Airlines Limited (C6L) Earnings Call Transcript & Summary

Good morning, everyone, and I hope you're all well. My name is Siva, and I'm from the Singapore Airlines Public Affairs Department. Welcome to our half year media and analyst briefing. Given the COVID-19 safe management measures that are in place in Singapore, we are unfortunately unable to meet everyone in-person once again. However, we have organized this virtual session, and we hope that it will be useful for you. Today, we have 2 presentations. First, Mr. Tan Kai Ping, Executive Vice President of Finance and Strategy, will present the group's first half results. Next, our Chief Executive Officer, Mr. Goh Choon Phong, will take you through the outlook and strategy for the SIA Group. Following that, we will have a question-and-answer session. Without any further ado, I would now like to invite Mr. Tan to make his presentation. Mr. Tan, please.

Good morning. Thank you for joining us. I hope you have a copy of the slides that we have I think sent over, uploaded, and I will be calling out the slide numbers. If you could start with Slide #2, here are the highlights of the first half financial year '21/'22 results. The group incurred a net loss of $837 million, $2.6 billion better year-on-year. The main components of this improvement, $1.2 billion from better operating performance and $1.4 billion due to the absence this year of the large aircraft impairment charges we took last year. The group's operating loss was $619 million, but this included a $564 million debit last year from fuel hedge ineffectiveness and fair value loss against a $79 million fair value gain this year. So removing the impact from fuel derivatives, the underlying operating performance improvement was $601 million rather than $1.2 billion with improvement coming mainly from better passenger and cargo revenues. Looking at quarter 2 performance against quarter 1, operating loss widened $71 million. However, this included a much larger fair value gain on fuel derivatives in quarter 1. Excluding the impact from fuel derivatives, quarter 2 operating loss was only marginally higher, and this against the backdrop of high fuel prices with revenue managing to match up as the passenger network expanded further. Operating cash burn continue to reduce as we progress through the first half with average monthly operating cash burn at $18 million, 1-8 million per month. Towards the end of the first half, we welcome good news of international borders starting to be reopen to quarantine free travel, including via Singapore's Vaccinated Travel Lanes, bringing positive momentum to the passenger business segment. Moving on to Slide 3. We have continued on a path of calibrated capacity recovery. If I may use this slide to orientate where we are along the capacity recovery profile, the bars show capacity deployed as a percentage of pre-COVID capacity, the blue bars show passenger capacity, green bars show cargo capacity, the orange bars show overall capacity. We have been gradually rebuilding the passenger network from just 3.8% of pre-COVID in quarter 1 last financial year to 32.2% in the latest quarter just ended. Passenger capacity in the first half of financial year '21/'22 was 5.4x higher year-on-year, while quarter 2 financial year '21/'22 was 21.5% higher quarter-on-quarter. Cargo capacity versus pre-COVID declined much less even at the start of the pandemic from the maximization of better deployment and the use of passenger aircraft to carry only cargo flights. Cargo has kept on the momentum all throughout this time period. You can see cargo capacity at 62.8% of pre-COVID in the latest quarter. Blended the overall capacity in capacity tonne kilometer terms or CTK terms, for first half financial year '21/'22 was 125.9% higher year-on-year and 15.1% higher quarter-on-quarter, and at 43.6% of pre-COVID. Moving on to Slide 4, focusing first on the first half operating performance. Against the 125.9% year-on-year capacity increase in the first half, revenue improved by a large number, 73% year-on-year by lagging capacity. Net fuel cost was higher by $434 million. Net of -- this is net of hedging gains, that works out to 115.5% year-on-year. Nonfuel expenditure was up by only a small 6.1%. We will go into the main expenditure items in the later slides. We took a $461.8 million fuel ineffectiveness charge last year, no ineffectiveness charge this year. The fair value gain on fuel derivatives this year versus the loss last year was $180.6 million positive swing to the operating line, hence the operating loss of $619.4 million. Looking at the quarter-on-quarter performance. Quarter 2 operating loss was $345 million or $70.6 million more versus quarter 1. However, there was a $64.8 million swing caused by the larger fair value gain of fuel derivatives recorded in quarter 1. So stripping out this item, the underlying operating loss was $352 million in quarter 2, so a much smaller $5.8 million higher quarter-on-quarter. For reference, capacity quarter-on-quarter was up 15.1%. Fuel bill, however, increased more by 25% with higher fuel prices. Nonfuel expenditure trajectory was well under control, up by a smaller 12%. Revenue increase outpaced, being up 18.4%, largely covering for the higher quarter-on-quarter cost resulting in the underlying operating performance being almost flat quarter-on-quarter. On Slide 5, we are moving on to looking at revenue in a bit more detail. Revenue continued on an uptrend over the last 4 quarters, albeit still a long way from $4 billion per quarter pre-COVID level, but we are making steady progress. Moving on to Slide 6. The pie chart on the left shows the share of first half revenue by business segments. While the bubbles above the bars on the right captures the revenue performance levels by business segment versus pre-COVID quarter 3 financial year '19/'20. Focusing on quarter 2 financial year '21/'22, it shows a larger uptick in PAX revenue -- passenger revenue compared to prior quarters, an encouraging sign. The star performer has been cargo. Despite cargo capacity still below pre-COVID levels, cargo revenue reached $1.9 billion in the first half of financial year '21/'22. This is significantly above pre-COVID levels, and this is a new record high. Moving to Slide 7, expenditure. Expenditure was lower by $51 million year-on-year for the first half despite much higher capacity deployed this year. This is due to the year-on-year impact from the fuel ineffectiveness and a fair value movement in fuel derivatives. So if we strip out this impact, and you see this in the next slide, on Slide 8, we have a more intuitive picture with expenditure up $591 million for the first half or 20.2% year-on-year. But this still lags year-on-year capacity increase quite widely. So let's understand this better by looking at a breakdown of major expenditure items in the next slide, so on to Slide 9 now. Fuel costs, net of hedging gains, handling charges, landing, parking and overflying charges, increased in tandem with the year-on-year capacity increase. Staff costs increased from higher crew allowances due to the higher level of activity with more capacity deployed year-on-year, lower government grants, partially offset by lower headcount. Depreciation and lease aircraft charges declined by a significant quantum due to the aircraft impairments we took in the last financial year, lower heavy maintenance performed due to the reduced flight hours since the pandemic began, expiry of certain aircraft and engine leases. So you see there a big change. AMO costs fell due to maintenance credit received from OEMs for the half, which more than offset the increase in AMO costs from offline. Looking closer at fuel costs on Slide 10. The $434.2 million higher fuel bill came from higher uplift with the increase in capacity contributing $243.3 million of the increase; higher fuel prices contributing $436.3 million, but offset by hedging gain of $209.4 million; a weaker USD against Sing dollar made up the remaining of the amount. On to Slide 11. This time series plot shows the progress in the group operating line since the pandemic started in quarter 1 financial year '20/'21. As mentioned before, first half operating loss was $619.4 million, $1.2 billion better year-on-year. However, the numbers contain quite a bit of impact from the fuel hedge ineffectiveness charge and fair value movement of fuel derivatives on a year-on-year basis. So we strip this out to look at the underlying operating performance. And you see that in Slide 12. Here the adjusted numbers, the group continues to make steady improvement in the operating line. The underlying operating loss was $601.1 million lower year-on-year while quarter-on-quarter operating loss was marginally wider by $5.8 million. On Slide 13, I'm moving back to the reported numbers. The $1.2 billion operating loss reduction was driven by higher passenger and cargo revenues. The positive year-on-year impact from fuel derivatives, mostly offset by higher net fuel costs from higher uplift and higher prices, lower depreciation due to the surplus aircraft impairments taken last financial year, higher costs from deployment of more capacity, partly offset by continued cost saving initiatives. On to Slide 14. Operating results of the main companies in the group. All the major companies in the group delivered a reduction in operating loss in the first half. For full-service carrier, operating loss narrowed by $1 billion year-on-year for the first half driven largely by revenue improvement and the absence, again, of fuel hedging ineffectiveness charge taken last year and the impact from the fair value changes in fuel derivatives. For quarter 2, taking out the impact from the fair value change in the fuel derivatives line, the underlying operating loss quarter-on-quarter was slightly wider by $27 million. For low-cost carrier segment, the factors driving the reduction, the operating loss were the same, albeit a smaller magnitude. Operating loss reduced by $196.7 million for the first half. For engineering company, improvement in performance came from higher revenue, largely from airframe, line maintenance segment, engine and components segment. There was higher expenditure, largely attributable to higher staff cost of $31.7 million due to lower government grants on a year-on-year comparison basis. Material costs increased due to rise in business activity, partially offset by lower depreciation of $6.1 million. Moving on to Slide 15. And here, you see the net results line. Group net loss for first half was $836.8 million, an improvement of over $2.6 billion year-on-year. Slide 16 shows the waterfall chart for the items that contributed to this improvement. The improvement in the net line was mainly driven by better operating results and the absence this year of the impairment charges we took last year, chief of which relates to the impairment taken in respect of surplus aircraft last year. Slide 17, balance sheet metrics. Balance -- cash balance at the first half stood at $12.5 billion, debt-to-equity ratio at 0.69x. Just some update on the fleet picture and what we are expecting in terms of deliveries for the rest of the year. You can see in the table where we were at the half year mark as well as what we see coming in for the second half. No changes really in the final fleet tally compared to our last update, except we have included now the 737-8 MAX into the operating fleet table and also taking into account the delay in delivery of one Scoot A321neo, which was moved into the next financial year. Slide 19. This is an update on our hedge book position. It's a little bit complicated. So if you don't mind, I'll take a bit of time to explain this. Following the outbreak of the COVID-19 pandemic, there was a material reduction in the group's capacity compared to the prior planned flight schedules, as you are aware. As a result, we had to recognize fuel hedging ineffectiveness and a fair value movement in prior quarters, as you heard me repeat quite a few times in the course of this presentation. In view of the reduced fuel consumption projections compared to pre-COVID and the uncertainty that still remains in the capacity recovery profile, we took steps in the first half of financial '21/'22 to recalibrate our hedge book closer to a neutral posture. This was achieved through sale swaps, which matched and closed out some of the hedge positions. As a result, our hedge book is currently as follows: around 30% of expected consumption for second half financial '21/'22; hedge in Brent at an average price of about USD 57 per barrel; around 40% of expected consumption for the period between quarter 1 financial year '22/'23 and quarter 1 financial year '23/'24 hedge in Brent at an average price of about USD 60 per barrel. Hedge positions beyond quarter 1 financial year '23/'24 have been closed out. The closeout trades taken into a period of rising oil prices have locked in gains of USD 89 million for the second half of financial year '21/'22, and USD 225 million for periods beyond that on a cash settled basis. So cash settled basis means is the cash that we received from our hedge counterparties when the trades mature, okay. So for perspective, the cash settlement gain from closeout trades, so for example, for quarter 3 financial year '21/'22 is USD 38 million, which is equivalent to an offset of USD 12 per barrel for the unhedged volume as currently projected. Net of mark-to-market gains, which have already been recognized in prior periods, hedging gains to be recognized in P&L were now USD 24 million for second half financial year '21/'22 and USD 208 million for the periods beyond. So there's a difference between the cash settled amount and the P&L amount, because of the accounting rules, as fuel prices go up, we have to mark-to-market the hedges which no longer qualify for hedge accounting, basically the volumes which exceed what we expect to consume, okay. So that accounts for the difference between the P&L impact and the cash impact. Moving on to Slide 20, and this is my final slide. These are our updated CapEx projection. Compared to what we have announced in February 2021, we are lower by $600 million over financial year '21/'22 and financial year '22/'23. And this has taken in 2 main updates. One is our latest projection on heavy maintenance and engine overhauls, so with the lower level of activity of flying during the COVID period, there is a reduced schedule on heavy maintenance and engine overhaul. And it has also taken in the Buyer Furnished Equipment or BFE and aircraft modification CapEx projections following finalization of some further contract negotiations. Thank you for your attention. Allow me to hand over to our CEO.

Thank you, Kai Ping. And good morning, everyone. Welcome again to our midyear analyst media briefing. I'm on Slide 22. My presentation will cover 4 topics, Slide 23, and I move on to Slide 24 now. You may recall that Wuhan lockdown happened near the end of January '20. And thereafter, the virus spread rapidly throughout the world, and international border closures happened in quick succession. And as a result of that, by April, most of the international borders are closed. And you can see that we were only carrying 10,000 passengers in April compared with 3.4 million in January just before COVID hit. So it's a very significant drop within a very short time. And our capacity was brought down to only 3% to 4% of the pre-COVID capacity. With such a drastic drop and massive disruption to the travel market, you can expect that one of our key priority then was to handle the massive disruptions to our operations, to our customers and also to our staff. And indeed, a lot of our resources were devoted to handling such -- the disruptions as a result of this, and to minimize the inconvenience to the extent possible for our customers. The other key priority is about ensuring that we have enough liquidity to survive. You're aware that we're among the earliest to actually went out and raise a significant amount of funding. In this case, we started with the $15 billion we raised from our shareholders, supported by our majority shareholders, Temasek, and also other shareholders. With their strong support and with a strong statement of support from the Singapore government, we were able to successfully raise another $6.6 billion from various sources. At the same time, we were also one of the earliest airlines to begin the conversation with the OEMs to talk about deferring our capital expenditure, deferring our payment to -- for aircraft. And in fact, we succeeded in moving up about $4 billion worth of capital expenditure in the first 3 years. We also took steps to reduce costs in other areas, including the very painful exercise we have to do in reducing our staff headcount. All these efforts and also some of the initiatives taken as part of our Lead The New World transformation have led to an effective reduction in our cash burn. As you can see on the slide, on Slide 26, we started off with 300 to 400 cash burn and in the latest quarter, we are approaching breakeven. But it's not just about handling the crisis from a perspective of immediate actions as well as having enough liquidity. We have also taken steps to ensure that we have put in place the right foundations so that we can emerge stronger. So on Slide 28, this is a slide that many of you would have seen in past presentations, but we added more items in there. It's about ensuring that we take care of all health safety concerns of our customers and that of our staff throughout the entire customer journey. In fact, we examine in detail more than 190 touch points and at each touch points, to enhance the health safety measures. I'll just call out a few more recent initiatives and achievements on Slide 29. You can see here that we are leveraging the digital foundations that were built in previous transformation on digital solutions that would allow our customers to have touchless interactions and also to lead the industries in some of the measures that are critical for travel in COVID environments such as the digital health certificate. I would also like to share that from 1st November, the SIA operation itself are now fully staffed with -- rather are fully operated with fully vaccinated staff, fully vaccinated crew, and that will be the case for Scoot as well from 1st December. I also would like to point out that our efforts in all of these have been recognized by industry bodies. In fact, Scoot has been recognized as the first LCC to have achieved those recognitions. Slide 30. We didn't stop there. We also look into other aspects of improving the customers' experience, as you can see on this slide, the last part of this slide. We are looking into all aspects of enhancing the customer's experience. In this case, you are aware that we have always presented a very elegant cabin interior. We have constantly improve and enhance our food offering on board, including the latest introduction of local -- famous local fare, such as the Boon Tong Kee Chicken Rice. We are well recognized for the personal touches by our crew as well as the materials that we have chosen onboard the plane. But you are probably aware of the recent introduction of the SIA melody, which is an original compensation incorporating the enduring is a great way to fly jingle that we used to have. The next time you fly, you will hear that for our departure as well as landing as well as at our lounges. In December, we'll be introducing the SIA signature scent, so we'll watch out for that. We are also continuing to enhance the value propositions for our frequent fliers. So in the case of KrisFlyer, we have added close to 250 non-air partners that would allow KrisFlyer members to be able to use their miles to redeem. Beyond just flying, we have enhanced other value propositions for our KrisFlyer members, and despite the pandemic and very light flying, were able to increase the membership number for our KrisFlyer program. There are other efforts that we have enhanced as well. I mean we are well aware of Kris+, which we have presented in previously. But let me just touch on KrisShop. KrisShop shop revenue increased 40% year-on-year, but even more pertinent is to point out that the KrisShop revenue in the latest quarter is actually 7% more than the KrisShop revenue pre-COVID corresponding quarter, that means quarter 2 of financial year '19/'20. And that's despite the fact that relative to that quarter, we are only carrying about 4% of passengers -- 4% to 5% of the passengers. This means that KrisShop has successfully pivoted into capping the e-commerce area to enhance and improve their revenue. So watch this space as we'll be doing more. We have also used this period to continue our discussion with partners all around the world to look at how we can enhance our partnership for the convenience of our customers' connectivity. And I'll just point out 2 aspects. One is that we are certainly continuing to discuss with partners in Southeast Asia, including Malaysian Airline. And we have recently also announced an MOU with United Airlines to facilitate the transfer of passengers for our passengers on to domestic points in the U.S. We're well aware of all the cargo initiatives, and Kai Ping has presented how well cargo has been able to leverage all those initiatives to both improve carriage as well as you. All those that I have covered so far in this Slide 32, all those things that I have covered so far is really part of this overall Lead The New World initiative that we have started. Now into our second year, we have more than 250 initiatives that touch on both revenue generation and improving customer experience. We have also more than -- separately more than 200 initiatives that look at how to improve staff productivity. And I just want to point out that beyond that, this whole Lead The New World initiative is also about preparing the organization to be able to react to changes in the market in a nimble and flexible manner. I've gone to the next part of my presentation. And if you look at Slide 34, we're well aware of the many other initiatives that Singapore have experimented with in the past that includes the unilateral opening green lanes as well as the air travel bubble that we were trying to establish with Hong Kong. None of that have really taken off in any significant manner. However, they were very good initiative to actually try all possibilities to increase and encourage travel. VTL is really the one that has brought about a meaningful increase in traffic, and this shows how important it is to have bilateral quarantine-free travel arrangement for our travelers. As you can see here, this is a snapshot taken on the 8th of November. With the announcement and implementation of the VTL, the booking profile has rapidly increased. In the VTL arrangement, you will note that every time when the new VTL arrangement with a country has been announced, we were the first airline to actually implement the -- put in place the sales process as well as implementing the flight itself. And that is what I was talking about, the preparatory work that we did all this while before the VTL has enabled us to be the first off the block to capture all these opportunities. Throughout this period, too, we have been increasing our network. And in the -- at the moment, in November, we have about 37% of pre-COVID capacity. We expect to reach 43% by December. And by then, we would expect also to recover more than 50% of pre-COVID destinations. On the right side of this slide is an illustration of the agility that we have taken during this period to tap into all possible revenue opportunities. You can see that we have proactively gone into tapping intra-Europe traffic as well where we have the rights and where the borders are open, similarly for Transatlantic and Transpacific traffic. Slide 36. You can see here that we have been actually using, at this moment, almost 80% of our fleet in operation and a significantly high percentage of our crude, 90% -- over 90% of pilots and almost 90% of cabin crew have been activated as well. Given that we are operating even by the end of this year 43% of capacity, such an arrangement would allow us to react again very quickly to changes in the market and tap on any revenue opportunities that may arise. Slide 37. I think we have seen all this. This is just a summary of some of the announcements that have been made recently by various countries in view of the higher vaccination rate in those countries as well as the recognition that the opening of border is important to stimulate the economy. Looking at this, we can be confident that there will be more quarantine-free travel arrangement to be implemented. And you can be sure that with the preparation that we have been doing to be much stronger, we'll be there among the first to tap any opportunities. Slide 39, I just wanted to talk about our commitment to sustainability. I believe everyone is aware -- well aware of the emphasis we have been putting on sustainability all this while. And I've mentioned in the past that, at the moment, the most effective way to reduce carbon emission is really to make -- to use more of the modern technology planes. And if you were to compare a later technology plane with the generation before, our experience has been that we were able to reduce up to 30% in terms of emission. Our current fleet age is just over 6 years. The industry fleet age is just over 15 years. Now what does this mean in terms of carbon emission? If we do a simple simulation, assuming that we are currently operating a pre-COVID capacity and if we -- if SIA has not stopped any renewal from, let's say, 2010, today, we would be about industry level in terms of fleet age. And if we were to compare the emission if we had that fleet age to the emission of our current fleet, again, operating the 20 -- pre-COVID capacity, 2019/'20 capacity, we would have saved over 2 million tonnes of CO2 emission. There is a very significant reduction. But of course, it's not just about operating modern fleet, although that is, as I said, the most significant contribution one can make in the near term. We have always been looking at how to further improve operational efficiency. And you can see on the slide -- on the right side of the slide, initiatives such weight reduction, optimization of routes, reductions in terms of removing footrests and so forth, all these contribute to reducing fuel burn on the plant. And beyond that, we have installed solar panels on all our buildings, and that contribute to 20% of our electricity requirement for the year, replacing it with clean solar-generated green electricity. On Slide 40, continuing with sustainability, we fully recognize that SAF, which is sustainable aviation fuel, will be a key component of the ability for us to meet the carbon neutral -- carbon net-zero target by 2050. In fact, our involvement in sustainable aviation fuel went way back from 2011. And right now, we are discussing with various ecosystem partners in Singapore to look at how we can bring about the supply of SAF in a commercially viable manner. Then there is this aspect of carbon credit. We have also taken steps to offer offset program for our customers so that they may choose to offset their carbon footprint when they travel by buying into these high-quality credits. On Slide 41. Sustainability is not just about CO2 emission. We recognize that there are other aspects of sustainability that we will need to also work on such as reducing waste, food waste, paper waste, plastic waste and also look at how we can contribute to our community. And this includes also the later Upcycling Project that we are doing as we dispose some of our older generation planes. That was my last slide. Thank you very much.

Thank you, Mr. Goh. We will now move to the question-and-answer segment. Now for this segment, Mr. Goh and Mr. Tan will be joined by Mr. Mak Swee Wah, Executive Vice President, Operations; and Mr. Lee Lik Hsin, Executive Vice President, Commercial. [Operator Instructions] And with that, Rishi, can I leave it to you for the first question, please.

We have the first question from Chen Chuanren from Air Transport World.

We see that your freight cargo revenue has been high, but it seems that you are still maintaining your freight capabilities. Are there plans to invest further into freight? Or is your focus still mainly on passenger and ancillary revenue?

We do not comment on our fleet renewal and expansion plans until we are ready to do so. But clearly, we have been utilizing our freighters at a higher level than pre-COVID to take advantage of the strong demand in the freight market. And as the passenger capacity ramps up, we will also have the additional valuable space to similarly take advantage of the market situation. Thank you.

That was for the record, Lee Lik Hsin, Executive Vice President, Commercial.

The next question is from James Teo from Bloomberg.

Yes, this is James from Bloomberg Intelligence. And my first question is on the VTL versus your normal capacity. We've seen very strong bookings for VTL flights that you highlighted just now. So how do you rationalize with the normal capacity that you had before? Do you reduce typically when the VTL opens and how do you balance? I presume the use would be higher on the VLT. But would you still be operating some of the normal flight or non-VTL flight on the same routes? So that's the first question. And the second one is on fuel hedging. I think Kai Ping mentioned about a neutral posture. Could you elaborate a bit more on what is meant by a neutral posture? Is there a certain scenario where you're neutral, being in line with your scenario of, let's say, 50% international traffic recovery next year? And then how many percent for the year after that? Now could you elaborate more on the neutral posture, please?

So James, I will take the questions on VTL versus normal routes, and Kai Ping will elaborate on your questions -- on your other questions. As you can see from the slide presentation earlier, even before VTL was introduced, we have been increasing our coverage, network coverage and capacity over time. And there is no intention to reduce our coverage as a result of VTL. In fact, we'll continue to look for opportunities to increase. And of course, VTL facilitates the travel because of the quarantine free travel both way, especially travel between Singapore and the other countries that VTL arrangement is with. But at the same time, there are also sixth-freedom traffic, and we will continue to also carry that and strengthen the hub through it.

Thank you, James, it's Kai Ping. Let me explain the statement around neutral posture. If I may bring you back to pre-COVID, we have never hedged all of our consumption requirements. However, as we went into the COVID situation, big capacity cuts, we found ourselves being more than 100% hedged in respect of our consumption. So simply, what I meant by moving to neutral posture was just to carry back our hedge book to the left or right of 50%. So neutral posture means we take no view on price, yes? So left or right of 50% will be neutral. Now our hedge book is currently on the left side of 50% simply because if we take the balance of risk view, then with the uncertainty still in the profile of recovery, although we see recovery, but profile is uncertain. So the neutral posture in our view will be on the left-hand side of 50%. Now let me just be clear. When I use the term hedge percentage, it refers to the quantum that is fully protected under hedge accounting definition. So when I say 30% hedge, 40% hedging, these are swaps and give a full protection. Now the so-called unhedged portion that we have taken sell swaps to close out, they still mature. There is a sell swap and buy swap that still matures at the various quarters, and the gain that we expect from that portion is as I have disclosed. So there is protection there as well. Okay. I hope I'm clear, James.

Thank you, Kai.

[Operator Instructions] The next one we have is from Adrian Schofield from Aviation Week.

I just had some questions regarding Scoot. First of all, wondering when you might be returning more of the Scoot 787s to service. And then if you could perhaps talk generally about what sort of advantages and disadvantages long-haul LCC services might have during the recovery phase compared to other models.

So yes, Scoot. Obviously, as you are aware, before COVID, Scoot's main areas of operations were to China, India, Southwest Pacific and some long-haul flights to Europe, and Scoot has indeed resumed some of its long-haul flights to Europe. But at the moment, much of the regional countries and also China, India are limited in the way we can assess it, so Scoot would have to deploy its aircraft where the opportunity is there to do so. Of course, we'll continue to explore what other ways that Scoot can effectively tap into emerging traffic. There will be -- Scoot is looking at it, and we will be announcing some of this when we are ready to do so. So upon that time on the usual 787 and others.

The next question is from the line of Ian Wong from UBS.

I am Ian Wong from UBS. I have a question in regards to the cargo outlook. You mentioned that Q4 is traditionally a pretty strong seasonal quarter. Can we maybe get some guidance in terms of are we looking for positive sequential yield growth and volumes growth? Or are we starting to see some signs of competition, some of the competitors report recently that there may be signs of competition as well? So yes, just any color on the cargo outlook in Q4, please?

Yes, I'll ask Lik Hsin to answer that question.

Yes, we continue to see strong demand for cargo into this upcoming peak season. We obviously don't make any forecast around our load and yield, but I think we do expect that strong demand to materialize.

Next one is from Tay Peck Gek from The Business Times.

Can you hear me?

Very faintly, Peck Gek. If you could speak up a bit, please. Thank you.

Can you hear me now?

Yes, faintly, but please go ahead.

[Technical Difficulty].

Sorry, Peck Gek, we've got to interrupt you. Sorry, Peck Gek. We can't hear you clearly. I think your line is really bad. Do you want to send -- if you can't get into a different line, do you want to send an email to the Public Affairs mailbox and we'll quickly answer the question when we get it because your line is really bad, Peck Gek. Sorry about that.

Okay, I think I'll message [Technical Difficulty]. Thanks.

Yes. If you could send an email to the Public Affairs, that's our e-mail address, we'll address your question shortly. Thank you, Peck Gek.

The next question is from Patrick Hatch from Sydney Morning Herald.

Mr. Goh, I was hoping you could tell me what your expectations are around capacity into Australia for the first half of 2022 and then through to the end of 2022. And secondly, your airfares are very low in the first quarter of next year. Do you expect that to continue through 2022 as a way of stimulating demand?

So I'll ask Lik Hsin to answer the question. But I just want to -- before he answer the question, I just want to state that you probably are aware that throughout the pandemic, we have continued to serve Australia even when the borders are not open. But Lik Hsin, please.

And Patrick, as you are also well aware, for Australia operations, we still have to operate under the framework of CAAS for many of the cities, and so we would obviously be guided by that in our overall capacity recovery to Australia. But we are very, very happy about the VTL routes that we have put in place for Sydney and Melbourne, and we are obviously looking forward to more. In relation to pricing, obviously, that is a function of demand. I will only say that customers should take advantage of whatever low prices that are out there. Thank you.

[Operator Instructions] And the next one we have is from Jamie Freed from Reuters News.

My question is just on the Indian market. I was wondering what -- if you could talk a bit about your strategy there. And has it changed at all with Tata's purchase of Air India? And whether you see any sense in combining Vistara and Air India?

Okay. With respect to Air India, Vistara and all that, we do not disclose any confidential discussions that we may or may not have with our partners. If there are any aspects that are announceable, we will certainly do so when the time is right. Thank you.

Thank you, Mr. Goh. I will ask Peck Gek's question right now. So Peck Gek from Business Times is asking, she's checking on bookings for business class travel, how have they been, so premium cabin. And also any airfreight diversion from ocean freight because ocean freight rates have skyrocketed?

I'll ask Lik Hsin to answer the question again.

Okay. So as was part of CEO slides, we did say that we are seeing strong demand in the premium cabin. But actually, we're just seeing strong demand overall on the VTL flight as we have said. And this is across all segments. This is business, this is leisure and this is family travel. The other question was around ocean freight transferring to air freight. Now as I said before, we are seeing strong demand on the air freight side, certainly, much of the news around the supply chain disruption around the world may have played a role in that, but we are definitely happy to take advantage of whatever comes our way. Thank you.

Next question is from Greg Waldron from FlightGlobal.

Can you hear me?

Yes, loud and clear, Greg. Go ahead.

Great. Choon Phong, China was a crucial part of the SIA network before the COVID-19 crisis. And what are the implications of a prolonged absence of the China market for SIA strategy? And how do you go about replacing such a pivotal market?

Yes. China -- great. Yes, China is indeed, of course, an important market, actually, not just for SIA, but by virtue, that it is actually the second biggest travel market in the world, it is important just about to -- for any other countries as well. But China has a very strict operating limit to carriers from any countries at the moment, so there isn't much we can do about that. However, we are seeing that they are -- as I pointed out in my slides earlier, we are seeing that many other countries are recognizing that with higher vaccination rate and also the need to stimulate and ensure that economic activity to continue, there is a need to actually open up borders, and we will -- there is still some time yet for all this to happen, and we are quite confident that as that happen, we are in the position to tap that. So yes, China is not likely -- China opening is not likely to happen at the moment, but we are ready to capitalize on any other opportunities that may come our way.

Next question is from Lorraine Tan from Morningstar.

I just wanted to follow up on some deals on cargo yields and cargo demand. I noticed that obviously, with more passenger flights coming up and the fact that you are 80% of your passenger capacity, I'm just curious whether globally with more flights coming back, whether you will see social stagnation in cargo yields for the near term. I know that you don't really comment on that so much, but just some indication of what the industry is expecting perhaps. Also, structurally, I'm just curious whether that changes your planning on whether you would continue to have maybe more freight services in the future? And how would you -- and strategically, would that be something that you would be adding to in terms of your services?

Okay. Thanks. Lik Hsin will answer the question.

So globally speaking, the total availability of air freight is still far below what it was pre-COVID because the passenger services, which contribute a huge amount of capacity in the value hold still haven't resumed to what it was like pre-COVID at this time. So I think the question you are posing as to whether or not we will reach an oversupply, I think we're certainly not anywhere close to that situation. And to the second question on what we are intending to do to increase our capability, as I already answered that question earlier about greater utilization of operators as well as the increasing passenger capacity we are putting in, which will give us more value hold capability. Thank you.

The next one is from Divya Gangahar from Morgan Stanley.

Just one clarification on the fuel hedge strategy. Just trying to get a sense that given the oil prices have been rising the way they are, what prompted the decision to close out the hedge positions now rather than wait for a while given -- and have a more hedged position, given that we had locked in much lower prices in our previous hedges? So that's one clarification question. And the second is if you can give us some sense on passenger yield and how to think about that with the mix of VTL and non-VTL flights going into the next quarter. How should we think about passenger yields versus pre-COVID levels and versus the current levels with more VTL and premium cabins being bought?

So Kai Ping will answer the first question, and Lik Hsin will answer the second one.

This is Kai Ping. Thank you for the question. The purpose of our fuel hedging program is to manage volatility in a major input cost -- fuel cost. So we don't take a speculative position when we do hedging, so that means we don't take a particular view of whether oil prices are up or oil prices are down. Nobody can tell where oil prices are going. Oil prices have gone up in the recent 2 months. It's pretty elevated now, Brent $80-plus. But who knows what will happen in the next couple of weeks or couple of months. So we just take a posture that we usually take in respect of how do we manage volatility, and that is what drove our recalibration of our hedge book. I'll pass over to Lik Hsin for your second question.

Okay. In relation to passenger yields, in the last year when COVID first struck us, the passenger numbers came down to such a small level that the yields are clearly not representative of business as usual. And with more and more travel coming back via the VTLs, then the yields will move towards a more representative state. But I would make the comment that our focus is really on the RASK, the R-A-S-K, which clearly, we have that hope and we have that confidence that it will certainly be improving with more and more VTLs coming into play. Thank you.

The next question is from Lisha Ann Rodney from Channel NewsAsia.

I just want to check on jobs. So currently, 92% of pilots and 86% of cabin crew has been activated. Can I check on the remaining, when will they be expected to return? When will full staffing be back? If you could share a time line on that? And will more people, more employees be deployed for the cargo side of the business since it's doing so well? My second question will be with the looming threat of new border restrictions, how will this impact SIA's forecast?

Okay. I will take the first question. Maybe Lik Hsin will take the second question. So in terms of -- well, I have mentioned that we have 92% of pilots and 86% of cabin crew now back with us. And actually, it's at the level that we're operating now, which is 37% of capacity, pre-COVID capacity at the moment and going up to 43% in December, we are quite comfortable with this return rate. Some of our cabin crew and pilots are still deployed outside of the organization to help up in other organizations. For example, our cabin crews are still working as care ambassadors in hospital and so forth. We expect that gradually, they will come back. There is no definite time line at the moment. But certainly, the current manpower manning level suffice for the operations we have. Similarly, for cargo, we have always been looking -- because cargo has taken on a lot more in terms of its operations because now we have like passenger aircraft for cargo mission. And to the extent that those also involve the passenger aircraft operation, obviously, the passenger side would have manpower to supplement it as well. Lik Hsin?

Yes. The EU classification is something that is in a state of flux in regard to how it will impact us. Obviously, you would have seen the news about the new restrictions that are coming into play for Denmark. So this is an area that we will be watching. I think it is not absolutely clear that I wouldn't describe it the way you have, which is looming border restrictions because it is a guidance and the EU countries have their capability to make their own call on finally what new rules they want to put in place. Some may, for example, choose to put in place, testing if there were no testing previously, and that doesn't really impact demand. So we'll see how it goes. Thank you.

To just add that really some of these measures is outside the airline's control, but as we have pointed out in my presentations and others that the whole idea is getting the organization ready to be very agile, very nimble such that we can always react at very short notice.

Next question is from Daniel Lee from South China Morning.

I hope you can hear me. I just wonder, do you anticipate a future of operating mostly or only Vaccinated Travel Lane flight, at least one that fly to and from Singapore? And do you have a clear idea on how the rest of the Asia Pacific will reopen next year? For example, will Hong Kong and China be the last of your markets to operate and open up in your view?

I think it's probably fair to anticipate that there will be more requirements for destination travel whether it will be in the exact form that it currently is, is unclear. But -- and whether -- which other countries will join is also something beyond our control. But as a general trend, we do expect that there will be increasing opening over time, simply because, as I said, vaccination rates are going up. And also, there is a realization, the sentiment that the border opening is actually an important part of creating the economic activities for the country. But I just want to say that, as you can see in what's happening all over the world at this point in time, there are various flareups in the infection rate, and we fully anticipate that during this period, things can still be volatile and that the profile could be patchy, but we are fully prepared for that. Thank you.

Next question, please, Rishi. We probably have time for another 2 or 3 more questions, depending on the length of them.

Your next one is from Melissa Leong from Credit Suisse.

Can you hear me?

Yes.

My question is just the SIA summer schedule is back to pre-COVID level based on database data. So is it accurate? Or is it because of a lot of these...

Okay. Lik Hsin will answer your question.

We publish the schedule based on expectation. And as we come closer and we have update on how we need to adjust depending on the situation at the time, we will do so. So it's not a forward view. It's just what we publish so that we have seats available for sale. Thank you.

Great. Thank you. We'll probably take the last 2 questions, I think. Next please, Rishi.

The next one is from Shukor Yusof from Endau Analytics.

A quick question on carbon reduction. Do you support calls to tax frequent flyers to help your case, for airlines?

So if I may phrase that correctly, are you asking me if we plan to tax frequent flyers?

No, no. I'm asking if you are open to ongoing calls, there have been a lot of calls at the COP26 for frequent travelers, air flyers to be taxed. Are you supportive of that?

So the question is, do we support calls to tax frequent flyers in order to help the sustainability and the environment?

That's correct.

I think you are aware that currently, there is the CORSIA scheme and that was something that was endorsed at ICAO. And for that, the -- there is credit that the airlines have to purchase for any growth beyond, in this case, 2019 capacity. That's for the airline side. On the consumer, we have also offer the ability for consumers who are willing to actually purchase offset for their own travel. So I think those are measures that would help to mitigate some of these concerns over carbon emissions as a result of individuals traveling. I do not -- we do not currently have any support for taxing just a segment of our travelers. Any measures that are to be implemented should be done in an equitable manner. So that's our current position. Thank you.

Next question is from Mayuko Tani from Nikkei.

Can you hear me?

Yes, go ahead, Mayuko.

Great. I would like to know about the finance part. The second portion of the $15 billion you have -- I think you have already raised and you're going to use, so how long do you think it will last under the current situation where you're approaching the breakeven? And under these circumstances, do you think you will not need to go for the markets to raise more money for the time being? For how long? And another question is about the unit cost. With all the new measures that you have to bring in on the pandemic, how much unit cost has been added compared to pre-COVID?

Okay. I'll ask Kai Ping to answer those questions.

Thank you, Mayuko. Let me just do your second question first, which is a shorter one. We don't disclose the breakdown. In any case, I think the measures are extremely dynamic. So not very productive at this point to talk about it. But I think on a quarter-on-quarter basis, you can see our unit cost as we published, and I think we can just take that at face value for the moment. On funding, we have disclosed actually our expectation of how long our latest $6.2 billion, right, majority convertible bond, the second tranche, how long we expect that to last. And I think we guided that, that would last -- that will take us well into financial year '22/'23, and that remains our guidance. Thank you.

Thank you, Kai Ping, and thank you, everyone, once again. We have now come to the end of our media and analyst briefing for the year -- for half year rather. We hope to talk to you again during our full year results briefing. Until then, have a good day. Stay safe, everyone. Good luck. Thank you again.