Singapore Airlines Limited (C6L) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the Singapore Airlines full year media and analyst briefing for FY '21-'22. I'm Siva Govindasamy. I'm from the SIA Public Affairs Department. I'm very happy to see everybody in person this year once again after 2 years. It's really good to have the buzz of having a life event. So we are really excited to have you here as well. Thank you again for making your way down to STC. We've got the usual program this year. So we will start with a presentation by Singapore Airlines Executive Vice President, Finance and Strategy, Tan Kai Ping, who will take you through the financial results for the full year. That will be followed by a presentation by SIA's CEO, Goh Choon Phong, who will take you through the strategy and outlook for the next year. We also have some colleagues, media friends and analysts who are joining us from overseas who are dialing in. So welcome as well. I hope you can hear us clearly. We will then, after the presentation, have a Q&A, rather. So without much further ado, I'd like to invite Kai Ping to come on -- come up here and make his presentation. Kai Ping, please.

Thank you, Siva. Good morning. Good to see everyone. I've heard you guys over audio for the past 2 years. So good to finally see everybody in person. And for those of you dialing in from overseas, hopefully, we'll get the opportunity to see you next time. Let me go through the numbers for financial year '21-'22. The SIA Group ended financial year '21-'22 with an operating loss of $610 million, but it's a $1.9 billion improvement year-on-year. This was made up of an operating loss of $619 million in the first half, followed by an operating profit of $10 million in the second half. The significant improvement year-on-year across the 2 halves of the financial year came from revenue improvement with the recovery of network, capacity, and ultimately, passenger traffic shut down by strongly -- shut down strongly by robust cargo revenue performance. Passenger carriage staged a decisive upswing, up 6x year-on-year, reaching passenger revenues of $2.8 billion, activated by the launch and subsequent expansion of vaccinated traveling, or VTLs, in Singapore and the progressive relaxation of COVID border control measures in many of our key markets. Cargo revenue reached a new record high of $4.3 billion against the backdrop of robust demand and continued global industry capacity constraints. At the operating cash level, the group's performance improved decisively from a cash burn to a cash surplus of $824 million for the financial year. With the benefit of a strong balance sheet, thanks to support of our shareholders and from the investors, the group has been able to navigate the recovery from the pandemic in a decisive and calibrated manner. This chart shows capacity deployed as a percentage of pre-COVID for various quarters since the start of the pandemic with the blue bars showing passenger capacity, the green bars showing cargo capacity and the orange bars showing overall capacity. Passenger network and capacity recovery continued through the financial year with a step improvement in the second half versus the first half of the financial year, taking advantage of the step-up in demand. Passenger capacity in quarter 4 reached 47% of recovery levels, while cargo capacity was at 72%. On a blended basis, the overall capacity in CDK terms for quarter 4 was 9.1% higher quarter-on-quarter, 32.4% higher half-on-half and 101.9% higher year-on-year. I'll come back to these numbers repeatedly throughout this presentation as a benchmark against revenue and cost numbers. Based on current public schedules, the group expects passenger capacity to go from 47% of pre-COVID in quarter 4 financial year '21-'22 to 61% for the first quarter of financial year '22-'23 and 67% by quarter 2. Slightly lot of numbers, so let me orientate you through it. Beginning with the columns on the left, showing second half versus first half operating performance. Against the 32.4% overall capacity increase from the first half to the second half of financial year '21-'22, revenue improved by a much larger 69.4%. Non-fuel expenditure was up by a smaller 25.2%, a small fair value loss of a few derivatives in the second half versus a $79 million fair value gain in the first half. Net fuel costs was higher by $568.9 million or 70.2%, dragging the total expenditure upwards, 38.6%, but lower than the increase in revenue. Hence, the swing from an operating loss of $619 million to an operating profit of $10 million. Looking now at the columns on the right, comparing financial year '21-'22 year-on-year performance. Revenue grew 99.6%, about keeping pace with a 101.9% increase in overall capacity year-on-year. While net fuel costs increased by 115.6%, non-fuel expenditure was managed at a much smaller 19.9%, hence holding total expenditure increase at a smaller 30% year-on-year. We took a $487 million fuel ineffectiveness charge last year, none this year, partially offset by a smaller fair value gain on fuel derivatives of $205 million. With a stronger revenue recovery, the full year operating line improved $1.9 billion to register an operating loss of $610 million. Net loss was $962 million, a $3.3 billion improvement on better operating performance and lower noncash impairment charges. This chart shows a sequential plot of revenue since the start of the pandemic. There was a distinct revenue uptick in the second half, higher by 69.4% compared to the first half and outpacing capacity injection of 32.4%. However, the keen eye amongst you would have observed a somewhat weaker quarter 4 compared to quarter 3 and noted that quarter 4 revenue increase of 6.7% quarter-on-quarter, lagging the quarter-on-quarter capacity increase of 9.1%. I will unpack this later in our Q4 slide. The numbers do not really show up the encouraging underlying trend. This expenditure time series plot is impacted by the effects of fuel hedging ineffectiveness charges and fair value movement in fuel derivatives in financial year 2021 and in the first half of financial year '21-'22. So let's remove this impact to look at the underlying expenditure trend in the next slide, a more intuitive trend of rising expenditure with the restoration of capacity. Expenditure was up year-on-year for financial year '21-'22 by 35.8%, significantly behind the increase in overall capacity of 101.9%. For second half versus first half, increase in expenditure of 35.5% was slightly ahead of the increase in overall capacity of 32.4%, more pronounced in quarter 4 versus quarter 3 numbers, where expenditure increased 13.4% against the capacity increase of 9.1%. You have no doubt guessed by now that this is mainly driven by the higher fuel prices in more recent times. Again, some more details on this in a later slide. This time series plot shows the progress in group operating line since the pandemic started in quarter 1 of financial year 2021. The group registered an operating loss of $610 million, $1.9 billion better year-on-year. But the results were made up of 2 quite different halves, as you would observe, with a swing of $629 million from an operating loss in first half to an operating profit of $10 million in the second half. Breaking down the performance of second half. Quarter 3 registered an operating profit of $76 million, but quarter 4 saw an operating loss of $67 million. So let's take a look at the drivers of quarter 4 versus quarter 3 performance in the next slide. Keep in mind that from quarter 3 to quarter 4, passenger capacity was up 21.6% while overall capacity was up 9.1%. Revenue was up 6.7% quarter-on-quarter. So seemingly lagging the capacity injection. However, passenger revenue was up 46.5%, outstripping the passenger ASK capacity increase of 21.6%. This was despite the temporary suspension of VTL ticket sales for most of January as Singapore imposed restrictions due to the surge in COVID-19 Omicron cases. Strong pent-up demand saw ticket sales rebound as soon as VTL ticket sale suspension was lifted. Cargo revenue came off a record-breaking quarter 3 into a seasonally weaker quarter 4, hence causing some drag to the overall quarter-on-quarter revenue numbers. However, we should keep in context that in quarter 4, cargo revenue did not perform fully. It was still robust at more than 2x of pre-COVID even though cargo capacity was at 72% of pre-COVID levels. So in a sense, if you like, quarter 3 numbers was boosted by extremely, extremely strong cargo revenue performance. Quarter 4 was still strong cargo revenue performance, but really, we have the passenger engine finally firing up in quarter 4. So for the first time since the pandemic, we have all major segments of the business finally marching towards recovery. The ex-fuel expenditure increased in line with the increase in capacity and stronger passenger load. However, net fuel price increased by more as fuel price spiked. So let's take a look at fuel. Net fuel costs increased by 17.7% quarter-on-quarter, Q4 versus Q3, $112 million. This was made up of $50 million from higher uplift, $119 million from higher fuel prices. Hedging gain blunted the impact by $56 million or, in fact, a cushion of USD 14 a barrel in quarter 4. A weaker USD versus Sing dollar made up the remaining amount. In comparison to average fuel prices of USD 90.31 a barrel for financial year '21-'22, spot prices in early May have moved up by more than 50% and were close to USD 150 a barrel. Thankfully, the group remains hedged in Brent up to quarter 1 of financial year '23-'24 to about 40% of the expected consumption at about USD 60 a barrel. A further USD 98 million will be recognized via P&L in financial year '22-'23 from earlier fuel hedge closeout trades and USD 110 million between financial year '23-'24 to financial year '24-'25. So this is on top of what is the outcome from the fully hedged position, yes? These are the P&L gains from the closeout trades that we have taken earlier. The group will remain disciplined as appropriate in cost areas even as operations expand in line with demand. Moving back to full year operating performance, and here are the components of the $1.9 billion reduction in operating loss for financial year '21-'22. The improvement in performance was mainly driven by higher passenger and cargo revenue, partially offset by higher net fuel costs from higher uplift and higher prices, year-on-year movement in fuel derivatives line and higher variable costs due to higher capacity. Breaking down the operating performance by the main companies in the group. The full-service carrier segment delivered an operating profit of $275 million in the second half driven by better revenue performance, staging a marked improvement compared to the first half. For the full year, the full-service segment registered a loss of $112 million about $1.8 billion better year-on-year. The LCC segment, the low-cost segment, incurred a full year operating loss of $454 million, $116 million better year-on-year. Scoot's capacity recovery has been slower than SIA as many of Scoot's major markets only started to reopen at the end of quarter 3 and quarter 4. SIA Engineering company incurred an operating loss of $15.2 million for the second half as operating expenditure increase outpaced revenue growth. Revenue increase was insufficient to offset the reduction in grant from government wage subsidy. For the full year, SIA Engineering company incurred an operating loss of $21.9 million. At the net result line, the group incurred a net loss of $125 million in the second half, $712 million better or an 85% improvement over the first half. Full year net loss weighting at $962 million, just shy of $1 billion, but a $3.3 billion improvement year-on-year. This $3.3 billion improvement was mainly due to $1.9 billion in better operating performance; $1.7 billion lower year-on-year aircraft impairment charges; the absence this year of certain other noncash impairment charges taken last year of $210 million; $113 million surplus from aircraft and spare disposal, partially offset by a reduction in tax credit year-on-year; and increase in net finance charges, mainly due to additional borrowings. For financial year '21-'22, impairment charges for aircraft of $51 million were recorded mainly due to the impairment charges of 2 Boeing 737-800s deem surplus to requirement and further write-down on 3 previously impacted 777-300ERs due to change in aircraft trading plans. EBITDA was positive at $1.3 billion for the financial year with an EBITDA margin of 17.1%. As at 31st March 2022, gearing was healthy at 0.7x. Cash and cash balances stood at $13.8 billion. The group expects to add 14 widebodies and 2 narrow-bodies to the operating fleet by the end of financial year '22-'23. You have this table -- you can get this presentation from our website or from SGX, so you can study the table in your own time. Moving on to the projected CapEx. Projected CapEx compared to what we announced in November '21, is higher by $900 million from financial year '22-'23 to '26-'27 due to 2 reasons: one, delay in certain deliveries in financial '21-'22, which has pushed certain aircraft deliveries into future years; additional CapEx relating to the order for 7 A350 freighters, net of the shop out of 2 A350s and 15 A320neos from the group's order book. And this concludes my presentation for the financial results. I'd like to invite CEO on stage for the strategy and outlook presentation. CEO, please.

Good morning, friends. Again, a very warm welcome to our STC. I think many of you are familiar with this premise. So we hope, as what Kai Ping and Siva said, more of you will be able to attend in person in future briefings. I will touch on 2 key topics. The first one is about what we have learned as we navigate this pandemic and how it has actually made us stronger and also what we continue to invest during the last 2 years when -- even though we were going through a very difficult time. The pandemic has been devastating for the airline industry, but even more so for an airline like SIA because we have no domestic market. We are completely dependent on international operations. So when the borders are closed globally and for a period of almost 2 years, you can imagine the stress it has on an organization like us. Let me take us back to the period of pre-pandemic, which is the year 2019. Many of you will recall that we embarked on our first phase of transformation before that, 3 years before that. In 2019, we were completing our first phase of transformation, first transformation exercise. And we will -- coming out of that transformation exercise at the end of 2019 with all cylinders firing, we were achieving in that quarter, October to December 2019 quarter, record revenue, record carriage, passenger carriage, one of the highest load factor we have achieved and one of the best operating profit for the quarter. Then of course, COVID came. We saw the first sign of the effect of COVID in January of 2019 when Wuhan -- towards the end of January of 2020, sorry, when Wuhan announced its closure, the lockdown in Wuhan. And thereafter, very quickly, within a few months, virtually the whole world closed its borders to each other. So you can see here that by the time we reached April, we were operating only at 3% of the pre-COVID capacity. And what's worse, our passenger carriage dropped from 3.4 million in January to a mere 11,000 people by the time we reached April. Huge, drastic. You can imagine that when we have such a steep drop in terms of carriage, and therefore revenue, the stress it would have on the organization in terms of cash requirement. At that point in time, we were having cash burn, you may recall, of $300 million to $400 million per month. That is before we factor in the need to pay for aircraft that were to be delivered. So very frankly, at a point in time, it was a survival mode. How do we make sure that we have enough liquidity to keep the organization going? Fortunately, as what Kai Ping has mentioned earlier, we have strong support from our shareholders. We were able to raise $15 billion from our shareholders. And after that, with a strong statement of support from the Singapore government, we were then able to go out to many different sources of funding to raise additional funding. An accumulative funding raise since the April of 2020 was $22.4 billion, which, of course, make us one of the most -- the strongest balance sheet among airlines. It is actually a learning process for us as well. We have never had the need to reach out to so many different sources of funding. So in the process, we learned a lot about how best to actually organize the process of getting those fundings. What are the preparations we need to make? How do we make assessment of the viability of those funding sources? And this learning is going to make us more resilient. You saw in my headline earlier, one of the things that we became, we have actually emerged stronger and is resilient -- been more resilient. Not that we want another crisis of this nature, but should something of a similar nature that demand a lot of cash in the short term were to happen, we know now and we are equipped with the necessary knowledge to respond even more effectively. Of course, it's not just about funding. We took rapid and proactive steps to reduce our expenditure. Part of that is also about working with the OEMs to defer some of the payments that we have to make. Again here, we are one of the earliest airlines to reach out to all our major OEMs to negotiate the deferral of aircraft deliveries, and as a consequence, moving out over $4 billion of aircraft expenditure -- capital expenditure for the immediate terms. Our staff have to -- regretfully, have to also take their sacrifices. Besides taking pay cut, we also had to do a very painful exercise to reduce our staff strength. And as all of you know, we have consistently said that our people are our greatest and most valuable asset. And that's the reason why in this area of letting go of staff, we are probably among a very late execute -- very late in terms of execution among airlines. It is deliberate. We know that in a pandemic that affects just about all industries, it's going to be difficult for our staff to actually get jobs at that point in time. At the same time, we also know that this pandemic, like all the other crisis that we have gone through, will pass at some point, and we need our ability to actually bounce back as quickly as possible when that happened. So you see that we took a rather different approach to actually bringing down and letting go of people. Specifically, among our crew, whom you know would depend a lot on flying allowances to actually earn enough to bring back to their family, we have arrangement by reaching out to both public and private sectors in Singapore and talk about whether or not they would need extra manpower during that period. So there are people -- there are organizations such as hospitals, such as public transport and all that, that require additional people to help them with handling the customers that they have during the pandemic. So many of our people were attached out as car ambassador, as transports ambassador, safe distancing ambassador, contact tracing ambassador. Over 2,000 of our staff were placed out. The consequence of that is that when they are placed out with these organizations, our staff is able to get full pay. So that addressed the issue of them being able to provide for their family. At the same time, because they are actually working alongside people who are actually at the front line of fighting against COVID, they are contributing directly to the efforts, and that generated a lot of goodwill. At the same time also, they are gaining new skill, and they know that they can actually come back to SIA at some point where we see a recovery. And from a company's perspective, we're getting the experienced people who actually have acquired new skills because of this exposure that we've given. And this is the reason why we're able to achieve now crew many of our flights that have taken off in the last few months especially. We have been also more innovative during this pandemic. We have to. We know that health safety became such an important consideration. People want to reduce contact and all that. So we're able to quickly leverage on the investment that we had before that, the digital investment on that foundation to introduce ways in which our customers can interact with us without necessarily having physical contact. Things like your in-flight reading materials, they're able to do so and read on their personal devices. Similarly, they could also use their personal mobile devices to control IFE onboard instead of using the screen or the handset. We had a situation whereby nobody is flying, but we got to see how we can continue to engage our customers. So our people have found novel ways to actually engage when people are not flying. And maybe some of you have experienced that. We had our now well-known A380 restaurant experience. Overwhelming response. We planned for 2 sessions. We end up having to organize 15. We also -- I don't know whether when you came in, you hear the music that we're playing. That was a signature tune that we have introduced as well during this period to again engage our customers at an emotional level because if you listen carefully, you'll find that in that tune -- in that signature tune that we have introduced, there is that familiar SIA jingle, It's a great way to fly. We have also introduced signature scent, made of flowers, extracts from flowers that are indigenous to Singapore. And they now make available for sales on our KrisShop. So if you want to get something unique for -- especially for your overseas friends, this is a gift idea. Sales pitch. We continue to actually innovate even more in the various areas, be it product and services. By now, it's well known what we have done with regard to introducing the bento service, using a rare service where there is made up of recyclable papers. Not only did it actually allow us to introduce more varieties for our customers in terms of food varieties, it also reduced weight on the aircraft. And that contributed to reducing more than 2,000 tons of carbon emission per year. Of course, you would have read about our initiative with NUS in setting our corporate lab, looking further ahead on what are some of the innovations we want to proactively pursue. And of course, we talk about what we have done in terms of introducing new business models. Again, you should be familiar with it. Maybe I'll just highlight the point on KrisShop because it really shows how we've pivoted from before COVID to now. Prior to COVID, most of the KrisShop sales were all -- most of KrisShop sales were onboard sales. So in fact, above 60% of the revenue came from onboard sales. Today, or in the year just passed, with very little flying and, in fact, only recently, we actually reintroduced the onboard sales for KrisShop items. Today, even without -- with hardly any onboard sales, our revenue for KrisShop in '21-'22 was actually higher than that of pre-COVID, that is '19-'20. That says a lot on how KrisShop have been successful in pivoting what we used to get in revenue to e-commerce. I want to talk about also how we have become more agile. Let me show you this slides that shows the line indicating the capacity increase that we have up to this point in time, which is Q1 of this new financial year. I think it's easier to see how this reflects how proactive and how prompt we are in tapping demand when we compare it against what other airlines in Asia has been doing. This is a slide -- this is a line from data that we get from AAPA. And you can see that we have been driving up our capacity way ahead of our peers, especially in this part of the world. Bear in mind that we are talking about international operations, but also very importantly, is to see how we have been preparing and ensuring that our resources are able to respond to actually demand even at short notice. So if you look at these 2 lines, there are key 2 operating resources: one, the aircraft; secondly, the crew. You can see in both cases that we have been utilizing the crew and rotating them at a much higher percentage utilization than our recovery profile relative to pre-COVID in term of capacity. And this is where we can keep our operating resources ready for any increase that we see in the market and to be effective in tapping those demand opportunities. We're not just putting in capacity and not factoring in what kind of demand we could expect. If you look at the profile of how we inject the capacity in the various regions, you'll see that there's a close association between when we inject capacity and when announcement of greater openings were made. And in fact, as a result, you can see that our passenger carriage correspondingly has picked up strongly. And beyond that, you also would note that despite the increase in capacity and quite aggressive injections, we are seeing higher load factor. This is an indication of not just us wanting going capacity without assessment of what the demand is. For the next -- the slides on your right indicates what the profile looks like going forward. So the next 3 months, you'll see that the demand profile -- the forward demand profile actually is getting close to that of pre-COVID level, which again is very reassuring. Cargo, I don't need to elaborate a lot. But you can see that even for cargoes -- actually, you probably can see even more clearly that we are responding to this pandemic in a way that is more innovative. We converted passenger aircraft to carry more cargo. We are also getting more active in making agile decisions on putting in capacity so that we can fully tap the recovery profile. And cargo obviously has done very well in this context. One of the outcome of all these proactive actions that we have taken is the strong recovery in terms of cash flow. And you can see this profile. Now beyond what we have done and what we have learned and how we became stronger in some of these key attributes because of COVID, we did not stop investing and reinventing in other areas, particularly our core areas. We continue our transformation exercise. This is now the second year of our new transformation exercise. The focus is on getting our people to be even more productive through reskilling, through upskilling and also introducing more innovations and workflows adjustments to make us more effective. We continue to improve our products. So all the A380s that you see operating today are fitted with the latest A380 products. We introduced new products on the narrow-body 737 next. And we'll continue to invest to make the customer experience better. An example of that is the lounge that we -- okay, there are -- as you are aware, some of the reports have shown, there are some congestions at our lounge, and you'll be happy to note that by 20th of this month, we will be opening up the new KrisFlyer Gold Lounge, and by end of the month, the full renovated KrisFlyer -- SilverKris Lounge at the airport will be open. And combining the 2 of them, you will almost double the current capacity for lounge. So that will, to a great extent, ease the congestions. At the same time, you will be able to see some of the very thoughtful innovation that we've introduced for our customers' comfort. Of course, we -- despite the pandemic, we went ahead and do our freighter renewal. We continue to invest in new, more efficient aircraft. And as was mentioned earlier, we have also new models that we achieved with cargo operations, particularly the business ventures that we have, we gauge out recently. The other part that we have always focused on is our network. We -- as you saw earlier, we continue to be very proactive and aggressive in actually putting in place more connectivity. At the same time, we are -- we continue also to pursue even greater collaboration with our alliance partners. Some existing ones, you know Lufthansa and New Zealand, KL -- not KLM, but SK. But at the same time, we are -- we have been proactive in working with new alliance partners. So we have actually announced our partnership with MH, Malaysian Airline, with Garuda, with United Airlines, and we are stepping out even greater collaboration with ANA. The other important aspects and something that is dear to our customers is the loyalty program. Here, again, we continue to make it even more attractive for our customers. In fact, it'll be interesting to note that even during a pandemic, we managed to increase our KrisFlyer membership. Certainly, not least, in fact, it's really high up in our agenda, is sustainability. I've always said that the most effective immediate action any airlines can take with respect to sustainability is by having a fuel-efficient fleet. Our fleet age, on average, is about 6 years. The industry is more than double that. And if you were to contrast from our own operating experience, a new-generation aircraft with the older-generation aircraft on the same route, we have seen an improvement in terms of fuel efficiency of about 30%. Correspondingly, that would reduce the carbon emission by a similar percentage. And you can see that we'll continue to do that. But we also know that this -- the use of SAF, sustainable aviation fuel, has to be part of the solution. The industry has spoken about hydrogen and other possible technology. However, even the aircraft manufacturers who would acknowledge that the technology will not be available for long-haul, wide-body aircraft even by 2050, which is the commitment we have made to bring our emission to net zero. So we have announced various initiatives that we have to try to bring SAF in, and we'll continue to update as those initiatives progress. This is my last slide. Thank you for your attention.

Thank you, Mr. Goh. I probably need to remove my mask. While we get set up here, maybe I'll go through a few of the administrative details. Can you hear me? Okay. So we have folks who are dialing in virtually. So if you would like to ask some questions, please, could you scroll down your screen? There should be a little box in there where you can type in those questions. And my colleagues will be able to send those questions to me. And then at some point, I will ask questions from the colleagues -- from our friends who are dialing in from overseas. For everyone here, you know the usual routine. If you could please mention your organization. And really, we are short of time, as always. So if you could keep it to 1 question each, please, that will allow more people to ask questions. So without any further ado, we'll just need a minute for our CEO, Mr. Goh. But I'll invite the rest of the panelists. I'll introduce them as well. So joining Mr. Goh and Kai Ping will be Mr. Mak Swee Wah, who will be the Executive Vice President, Operations; as well as Mr. Lee Lik Hsin. He is the Executive Vice President, Commercial. And they will be able to take your questions as we go along. So -- okay, let's get started then.

Can I get the first question, please? We have a mic coming to everybody. So please could you wait for the mic? First, this gentleman here and then the gentleman behind him, please.

Greg Waldron from Flight. Quick question about the fleet. When do you expect the 737-800s to finally leave the SIA fleet? And what are the implications of the 777X delays for SIA?

Maybe I'll just address the second questions on the 777. So as you know, we previously have indicated that the 777 is expected by end of 2023. Obviously, Boeing has made the announcement that it'll be delayed. So we -- but the way that we have organized our fleet plan is such that we do have some flexibility in terms of making up for any potential loss in capacity. So you'll see that because some of the aircraft we own, we can extend the use of it. Others, even on lease, we can also have the options of extending. So at the moment, we are not -- I don't think that our growth plan will be severely hampered.

Thank you for the question. I believe your question is in respect of the 737 NGs. So we have already recognized earlier an impairment of $120 million in respect of the own NGs. So that was 8 own NGs. So those have been marked for sale, and some of them have been sold. So we are really talking about the 9 remaining lease 737 NGs. Now these leases will end between September 2024 and January 2026. And at the end of the lease, the plan is that the airplanes will be lessor.

Thank you, gentlemen here on the right.

Chen Chuanren from Air Transport World. Earlier this Monday, IATA Chief, Willie Walsh said there's enough growth in Asia Pacific without China in play. So my question is in terms of revenue. How much does China play in terms of your profits in the near term? And could I also get a bit of a clarification from Kai Ping regarding you mentioned of a change in aircraft training plans.

So as you know, we have not been able to restore our passenger services to China. And this affects both SIA and Scoot. As a proportion, it affects Scoot a bit more than it affects SIA because SIA operates to fewer points. We do not expect it to impact us significantly in this first year of recovery because we are ramping up on all of the other points. The capacity guidance, which we have provided so far of the 60-over percent, we have plenty of room to ramp up from that point before we even start reaching the point where we need to add back China. So this year's growth is still going to be a very strong one even without China. Thanks.

Thank you, Lik Hsin.

Maybe I'll just supplement by referring back to what I mentioned earlier about agility. So we are very agile. Where there is demand, we can very quickly deploy our resources to where the demand is. And we believe that over the next year or so, there will be opportunities for us to tap this demand, and we will be very responsive to those demand.

Thank you.

I think there's a question, Siva, sorry, on the impairment, right?

Oh, yes.

So the change in trade-in plans in respect of 3 777-300ERs. So we have certain trade-in rights in relation to our 777-300ER fleet. This comes from some of the aircraft orders that we made earlier, yes? So we have different options in terms of the condition we trade the airplanes in. So these are purely accounting. Now our earlier plan was to trade in certain airplanes in -- with higher engine life. We have now decided that for 3 of the 777-300ERs we want to trade in with a different condition, with a more tired engine condition. And having made that plan, the accounting rules require us to take the charge ahead of time. Now the reason why we want to do that is because we basically want to use the engine to power the 777-300ER fleet for a longer period of time. And that's partially the resilience that we're thinking around 777-9 fleet delay. Thank you.

Thank you, Kai Ping. Over here, please, maybe here and then the lady in blue, followed by the lady in the jacket, and I'll take some online questions. Thank you.

Brendan, independent analyst, Sobie Aviation. I have a question about your forward capacity. I noticed on Slide 30, you kind of had the frequencies through September for other regions. And if you look at your forward schedules as well, things kind of plateau after kind of the bump-up for June -- in June, July, August, September. Kind of a little bit of an increase, but not so much of an increase at around 70% ASKs and 65% seats, I think, versus 2019. But competitors are continuing to ramp up during that period, including here in Singapore. So I was just wondering, why are you slowing down during that period? Are you really looking at that? And are you concerned about losing your higher elevated market share that you have at the moment?

So we provided some guidance of what we think the capacity injection would be for now, but you can be sure that when the opportunity is available, we will certainly ramp up as we have done so previously to actually tap those demand. This is a general answer. What I can assure you is that with the agility that we have, we will actually go after any demand that we can see in the market.

Thank you. The lady over there, please?

Grace from CNA. My question has a bit more to do with the higher-than-usual flight prices, which would be of interest to the laymen. So will SIA be aiming to keep fares priced as high as possible to benefit from the possible pent-up travel demand? And what factors determine if and when SIA will bring prices back down?

Yes. So this is favorite question. We always say airfares are a function of demand and supply. The reality is that the flights for the next 2 months or so are quite booked up for many sectors. And so therefore, on those sectors, you will see higher prices. As you will know, with our pricing -- demand pricing, when the flights are empty, the flights tend to be cheaper; and when they are full, they tend to be more expensive. If you go out beyond 2 months, the prices come back down. And in fact, we regularly conduct promotions to try and get early bookings and early sales. So I would say that they're actually attractive prices out there in the marketplace. It really depends on when you need to travel and where you need to travel. Thanks.

Thank you, Lik Hsin.

This is Chu Peng from OCBC. So I have a question on the cost side. So given the cost inflation also a stronger USD, because I think some of the key cost items for airlines such as fuel cost and so the aircraft payment priced in USD, so just wondering what will be the impact. And also, how are you going to mitigate some of the cost pressure?

Well, certainly, stronger U.S. dollars, higher fuel prices, there will be a drag. They will increase expenditure. We will benefit from what we have done the last 2 years with our transformation program. There are many, many things that have been done. Many, many small things that have been done. All added together, we believe, will be quite significant in the ex-fuel expenditure area. And so you will see our efficiency flow through as we ramp up our operation. But there's no escaping higher fuel prices, stronger U.S. dollar, dragging the expenditure line. There's no escaping. Our -- the only place where we're going to find some relief as far as high fuel prices is concerned is our hedging program.

The question you have is really a general issue confronting the entire airline industry. So here is where -- even before COVID, we have one of the best cost structure. And with the experience of the last 2 years and the continued transformation, you can be assured that we will improve -- we have improved our cost structure even more.

Thank you. Maybe we'll just take some questions from the folks who are dialing in online. Firstly, we've got Adrian Schofield who has quite cheekily asked 2 questions. How is demand recovering for transit connecting flights, particularly in routes between Australasia and Western Europe? And also, do you think there will be increasing preference for long haul versus -- long-haul, non-stop versus connecting flights. So that's from Adrian Schofield.

So the increase in demand that we have seen is really global. And for us, therefore, it translates to both demand for passengers traveling in and out of Singapore as well as the demand for our capability to provide connecting passengers an itinerary between point A and point B via Singapore. So the transit, definitely, demand has seen that same strength as we have seen for demand to and from Singapore. The question of whether there is greater demand for long haul? What's that?

Yes. Well, long-haul, nonstop versus connecting?

We are -- maybe the way to answer that question is through observing that we have actually put on more services on our nonstops to the U.S. So definitely, we are seeing good demand there.

Thank you, Lik Hsin. One more question from Jamie Freed from Reuters. Could you please explain your strategy for Vistara in India as more competitors like Akasa and Jet emerge in the market and now that Tata owns Air India -- Vistara. Sorry, the question is, what is the strategy for Vistara going forward given the increased competition in the Indian market?

Vistara has always been competing with all the airlines in India. And that happened even before COVID. In fact, when Vistara was first formed, there were many more airlines in India that they'll have to compete with. Some of them obviously no longer exist, Kingfisher, Jet and all that. So I don't see that change. I mean we are in a very competitive industry. So any airlines who wish to be successful has to be competitive. Vistara has established itself clearly as the leading full-service carrier in India with great review from our customers. In fact, it has gone -- during this pandemic period have gone further to many more international points. So we're continuing to support Vistara's growth.

Thank you. We'll take some from the room. The lady in the front row in black, please, followed by this gentleman here and followed by Mayuko.

I'm Sharon Chen from Bloomberg Intelligence. Just one question on your cash balance. Given the strong recovery we are seeing, is there still a need to maintain such a high cash balance? And have you earmarked it for any particular use?

The answer is no. There's no need to maintain such a large cash balance. I think we are early days. We have just started on the real inflection point in the recovery part. We will look at these once -- we will look at our balance sheet, we look at this once we have a firm view, we have a very a confident view of our operating cash generation and the recovery trajectory.

Thank you, Kai Ping.

Hi, my name is Taufiq from TODAY Online. We note the number of positions reduced at SIA Group in general. But I'm more interested about how many former cabin crew did you have to let go throughout the pandemic? And as we recover, how many have returned so far? And do you intend to add on more as you expect more growth?

Well, as Choon Phong mentioned just now, in the early days, we did resize our workforce eventually, not at early stage. So because of the -- because there was uncertainty about the growth profile. But we have kept enough and looking at the planned growth that we have, the trajectory that we have seen, we are already now planning ahead. And we have started recruitment in the -- since a couple of months ago. So I think we are in a good place now to be able to support the capacity growth that we anticipate. So I think this recruitment will carry on to make sure that we have enough and beyond the stage that we are seeing. Thanks.

The lady here. Mayuko in the second row behind.

I'd like to ask about SAF. I believe you have a plan of -- you have been doing a pilot with partners. Can I know when exactly you're going to start using it? And the volume, how much of the total you are going to use in your maybe midterm plan? Also, what is the role that you're going to play in that simply as a user, a consumer of it? Or are you planning to do -- participate in any business, any plan?

The questions you have asked are really questions that we are currently discussing with our partners. So I will not be able to give you any answer at this point until we have some -- we have reach an understanding of how we're going to take it forward. So [Foreign Language].

We'll take one question from online. We've got Kaseedit from Citibank asking, first question, please comment on potential demand impact from rising ticket prices and cost and whether there will be full pass on or down-trade to lower cabin class. Second, why didn't CASK ex fuel decline quarter-on-quarter and which cost items in particular? And the third question is, was 777X being pushed out to around '25-'26? CapEx of $4 billion looks very high compared to delivery plan. Any plans to revise it downwards?

As we said, we are nimble in adapting to demand and supply. Rising ticket prices are because of strong demand. And so if there is a weakening of demand, ticket prices will fall back. In relation to whether or not there is a possibility of down-trading to lower cabin classes with higher ticket prices, that's not something that we have seen in the recent months. And of course, like we said, we will continue to be nimble and watch out for that and adjust prices accordingly to make sure that all cabin classes are filling up nicely. Thanks.

Thanks for the question, Kaseedit. We missed you in the room. Next time, you have to come physically to ask the tough questions. So you asked quarter 3 to quarter 4 CASK ex-fuel -- cost item ex fuel. Now I think you're comparing the increase in cost, ex-fuel expenditure quarter-on-quarter 11.7% against the overall ASK change of 9.1%. I think you have to take a blended view because passenger capacity was up 21.6%. So the reason why we provide both numbers is because some of the cost items will be driven by passenger ASKs, some of the items will be driven by overall CTK. So for example, fuel will be driven by overall aircraft activity. Certain items like in-flight meals, obviously, driven by load and passenger capacity increase. So really on a blended basis, we are still seeing economies of scale playing through with the injection of capacity. Now as for -- I think if you look at cost breakdown for items that are off trend, frankly, they are relating to items which are driven by a much higher passenger load factor. So they are actually, if you like, encouraging cost increase, okay? Now as for CapEx, the CapEx schedule has not taken into account any impact that may come with the 777-9 delay yet. So those discussions are still in progress with Boeing, and we will update when there is a conclusion.

Thank you, Kai Ping. Any other questions in the room? Okay. We've got -- sorry, Kyung Hee, I've missed you earlier. Peck Gek -- well, the gentleman with the mic, maybe you could go first, and then we'll go to Q&A and PK.

This is Jason from DBS Bank. Maybe 2 questions for now. So in terms of -- just following on the question on manpower earlier. So in terms of manpower, where are you today relative to pre-pandemic levels with regard to your flight crew and cabin crew? And the second question is forward bookings today are fast reverting to pre-pandemic levels. But can I check if -- is this uniform across all customer segments? Could you maybe provide a bit more color on the level of corporate bookings you're seeing at the moment?

With regard to manpower, as you recall, for the pilots, I think we did lose a few, but I think we kept almost all of them. And I think we did -- if you recall also, we had an agreement to mitigate some of the costs by having a pay-cut regime with them. So the numbers that we have now, almost where we were before COVID. So as more and more flights build up, the flights and the utilization has been going up. And so we are in a very comfortable position on that. Cabin crew, as mentioned earlier, we did let some people go. So the numbers that we have now is slightly -- it's below pre-COVID, of course. But we are operating at 60% of capacity, going up in the coming months. And this is where, I mentioned just now, we are both calling back this -- I mean putting back into operation crew who have not been flying so much as well as topping up with crew that we are recruiting. So the numbers that we have will be tracking the capacity that we are planning to deploy in the coming -- until the end of the year, yes? Thanks.

So when the passenger recovery first started with the VTLs, if you will recall, late last year, it was correct that corporate bookings at that time were slower to recover. But since April of this year, when Singapore fully opened its borders, we have seen a strong rebound on corporate travel. And the corporate bookings moving forward, we are seeing that the contribution is already very similar to pre-COVID. So I would say definitely that the momentum that we are seeing in our forward bookings is coming across all customer segments, which was the baseline question. Thanks.

Thank you. Kyung Hee, please.

I wanted to follow up on the manpower question. We have heard a lot, not just in this region, but other regions where lack of manpower has severely sort of undermine operations where flights have to be canceled and probably flights -- were planning to put back in had to be delayed. I'm just wondering, like how much of that is actually undermining your sort of plans to increase capacity given Changi airport also just said that they are looking to hire like 6,600 people to ramp up operations at the airport itself? Could you give us a bit of color? Like how much of that is really affecting your ability to increase capacity?

Maybe I will just take the questions. Internally, as what Mak has mentioned, we actually have been preparing for recovery right from the start, as you also can see in my earlier presentation. Even the way we have let go of staff, we bear that in mind to try to keep as many of these valuable resources as possible. Of course, from reports, you can hear that there are constraints elsewhere. And quite frankly, we just have to work with our ecosystem partners to address this issue. There is no simple solution, but you can be assured everybody is working towards the same goal of restoring the Singapore hub to what it was before.

Thank you. I'm really conscious of the time. So maybe Peck Gek and 1 or 2 more questions and that lady there. Thank you.

I'm Peck Gek from the Business Times. What is the ETA for return to profitability? And also, given that the annual loss was about $1 billion, people are asking why is SIA still sponsoring F1?

So when do we report -- when will we go back to profitability? What -- look at our second half is really profitable at the operating level. So I will leave to our very experienced analysts to project what would that be. But you can be assured that we will continue to share our operating stats so that would be quite transparent. On the F1 sponsorship, we obviously -- you can expect that we obviously would have been negotiating with the partners, with the relevant parties and have arrived at a conclusion that it is a worthwhile deal for us going forward in view of the spin-off effect it has in terms of bringing people into Singapore and also our brand exposure.

Thank you. And the lady over there, please.

So it's Ezien from OCBC on the bond side. So the first question is what would be some of the potential goalpost before you start thinking about potentially redeeming the Mandatory Convertible Bonds. And if I may, just a quick follow-up question on the fuel hedging programs. Is there any plans to maybe say hedge more? Or are you still intending to keep this more neutral position and absorb the fuel costs? That's all.

Sorry, could you repeat the second question?

Question is as a follow-up on the fuel hedging program. Is there any plans to hedge more? Or you are intending to keep this more neutral position and then absorb the potential higher costs?

Yes. Thank you for your question. On the MCBs, there are no definitive plans at this point in time that we can disclose. It's something that we will look at. Definitely, we need to think about as the recovery firms up and takes hold, together with the whole review of the balance sheet. Now fuel hedging. We have an active fuel hedging program in place. The -- really, the fuel hedging is not for the purposes, as we have always said, of making money from fuel hedging or certainly not losing money from fuel hedging, but to stabilize prices. So we are comfortable with our current hedge position, which carries us to FY '23-'24, something into first quarter of '23-'24, is something that is live active and under constant calibration. The philosophy continues to be, to look at the hedging programs mechanism to stabilize prices.

Great. I think that's about it, and we're done. Right on time. Well, thank you, everyone. Thank you, Mr. Goh. Thank you, Kai Ping. Thank you, Lik Hsin. Thank you, Mak. And thank you, everyone, for coming down today. It's great to see everyone in person again. We'll see you again in 6 months' time. So take care. Have a great day and a great week. Thank you.