Singapore Airlines Limited (C6L) Earnings Call Transcript & Summary

All right. Good morning, everyone. Thank you for coming down to the SIA training center this Wednesday morning. My name is Siva and I am with the Singapore Airlines Public Affairs Department. Very happy to welcome you here today to the Singapore Airlines Full Year Media and Analyst Briefing. We will follow the usual format this year. First, we will have a presentation by Executive Vice President, Finance and Strategy, Tan Kai Ping. And then we'll have our CEO, Mr. Goh Choon Phong, deliver our strategy and outlook for the year. So without any further ado, please could I invite Kai Ping to come up. Kai Ping, please.

Good morning. Thank you for taking time this morning. Following are the highlights of the SIA Group financial results for financial year '22, '23. The group delivered a record operating profit of $2.692 billion driven by record revenue performance. Passenger revenue rose strongly overcoming the moderation in cargo revenue and higher fuel prices. The record operating profit drove a record net profit of $2.157 billion, also aided by lower net finance charges partially offset by tax expense versus tax credit last year. The strong passenger demand has carried into the new financial year with robust near-term passenger forward sales in all cabin classes. This is even as the industry continues to navigate macroeconomic challenges, geopolitical uncertainties and increasing competition from the restatement of capacity. The Board has recommended a final dividend of $0.28 per share for FY '22, '23, including the interim dividend of $0.10 per share paid in December 2022. Total dividend subject to shareholders' approval will be $0.38 per share. To orientate ourselves on the status of network recovery. Passenger capacity in quarter 4 reached 77% of pre-COVID levels, while cargo capacity was at 84%. On a blended basis, the overall capacity in CDK terms for Q4 was 79% of pre-COVID, 1.7% lower quarter-on-quarter, but that's because of lower cargo capacity. Passenger capacity continued to recover. In ASK terms, was 2.4% higher. P&L financial year '22/'23, against the overall capacity increase year-on-year, of 58.7%, revenue increased by 133.4% driven by strong recovery of the passenger segment to a record revenue of $17.8 billion. Expenditure increased by 83.4%, which was above the rate of capacity increase. This was mainly due to the higher fuel prices. Net fuel cost was 137.9% higher year-on-year due to a 49.6% increase in fuel prices. Much larger revenue improvement resulted in record operating profit of $2.692 billion for the financial year. Net profit, a record $2.157 billion mainly due to the strong operating profit. Just looking at the second half versus first half briefly, the group posted a record second half operating profit of $1.458 billion. Revenue growth half-on-half outpace expenditure due to lower net fuel cost as a result of a 17.2% drop in fuel prices. Net profit improved to $1.230 billion, $303 million higher half-on-half, mainly due to a stronger operating profit. Focusing now on the revenue line. Revenue recovery outpaced capacity recovery throughout the financial year. We're moderating cargo revenue more than compensated by stronger passenger revenue performance. In fact, the revenue for quarter 2, quarter 3 and quarter 4 was above quarter 3 financial year '19/'20, the strongest quarter in the financial year '19/'20 just before COVID-19 struck. While cargo revenue weakened throughout the financial year for context, cargo revenue remained 83% above calendar year 2019, that is pre-COVID. In fact, cargo revenue of $3.6 billion was the second highest annual cargo revenue in the group's history only vested by the prior financial year. Full year revenue per ASK stood at $0.10, the highest yearly RASK in the group's history. Full year PLF, which a record 85.4%. Quarter 3 saw record quarterly RASK at $0.106 for quarter 4, saw a record quarterly passenger load factor at 87.5%. Looking deeper at RASK performance for the food service carrier and low-cost carrier segments, both FSC and LCC RASK for all 4 quarters of the financial year '22, '23 surpassed the financial year '19-'20 levels on the back of exceptionally strong passenger demand. In fact, both FSC and LCC reached record last levels for the full year FY '22,'23. Positive passenger demand momentum has carried on to the new financial year with forward sales remaining robust in the near term. Looking at cargo. Cargo load factor has been sliding for several quarters, dropping below FY '19-'20 levels between Q2 and Q4 of the financial year, but yields held up above pre-COVID levels. Cargo demand began moderating, especially in the second half of the FY as supply chain disruptions, which drove cargo to airfreight, these disruptions eased, combined with excess inventory levels and weaker macroeconomic outlook. There was also more competition with more cargo capacity returning via the bellyhold of passenger flights. Cargo demand is expected to remain soft going into the financial year '23, '24. Moving to expenditure. Financial year '22/'23 expenditure increased 83.4%, above the rate of capacity increase of 58.7% year-on-year. This was mainly due to net fuel costs due to the higher fuel prices year-on-year. More on this in a later slide. I want to look at cost pie chart breakdown of the major cost components. Staff costs increased 107.4% year-on-year, mainly due to higher profit-sharing bonus with a better operating performance, lower government grants received, higher crew allowances with a ramp-up in new flight activities and increasing staff strength. Handling charges, lending, parking or flying charges increased along with capacity in some passenger costs such as in-flight meals increased in tandem with a sharper increase in passenger carriage. Sales costs increased in tandem with higher revenue. So all these cost components increase according to trend. Only one that's off trend is the cost items in the others category, and this is mainly due to ForEx loss of $202.9 million. Now this was mainly due to the revaluation loss of $235 million on short-term deposits and bank balances, driven by weaker U.S. dollar against [ SGD ] dollar as well as exchange loss on cross currency contracts and spot contracts of $116.2 million. This was partially offset by the revaluation gain of $107.9 million on lease liabilities. Among these foreign exchange loss of $202.9 million, only $61.1 million was cash. While the remaining $141.8 million pertains to mark-to-market effect. Looking at a fuel. Fuel bill was $3 billion higher year-on-year due to an increase in fuel uplift due to higher capacity contributing almost $1.5 billion to the increase. 49.6% increase in fuel prices led to a $1.9 billion increase in fuel costs, higher hedging gain $5 million to $9.7 million and ForEx made up the remaining variance. A bit more detail on where our hedge book stand. This was marked at the 5th of May. For the new financial year '23, '24, quarter 1 was hedged at 40% of the expected fuel consumption at USD 60 per barrel Brent. Now these were hedges entered into pre-COVID, and this is the last of the pre-COVID hedges. Between quarter 2 and quarter 4 of financial year '23, '24, we are hedged at 39% in the mix of Brent and MOPS at an average Brent price of USD 79 per barrel, and MOPS at $93 per barrel. For the next financial year, we are hedged at 12% at an average price of $75 per barrel Brent and $88 per barrel MOPS and this as at 5th of May. To recap, if you look at the table at the bottom, we do have gains from prior closeout trades taken during the COVID year, which will flow through P&L, you can see that the bottom table, for this and the next financial year. Moving to the operating profit line. SIA Group had a clear breakthrough in quarter 1 of the financial year '22, '23. Turning around from an operating profit, reaching a record quarterly operating profit of $755 million in Q3, ending the full year with a record operating profit of $2.692 billion. This record operating profit was due to stronger passenger revenue overcoming the drag from moderating cargo revenue, higher net fuel costs and other expenditures and ForEx losses. Now breaking down the operating performance by the main companies of the group. The FSC, Singapore Airlines, accounted for the [ bottom ] improvement, achieving full year record operating performance of $2.601 billion. Low-cost carrier segment Scoot. Scoot had an outstanding year, turning around for an operating loss of $453.6 million in the prior financial year, to a record operating profit of $148.1 million in FY '22, '23, driven by strong revenue -- passenger revenue amidst a 15-fold increase in passenger traffic. SIA Engineering company, operating loss widened as revenue growth fell short of the increase in operating expenditure, largely attributable to increase in staff costs, higher production overheads and material costs. Moving to the net results line. The group achieved record full year net profit of $2.157 billion, $3.1 billion swing in a positive direction year-on-year. And this net performance was mainly due to better operating performance, lower net finance charges, partially offset by tax expense against tax credit last year. I would like to highlight in this slide the robust EBITDA of over $5 billion for financial year '22 '23, with a record EBITDA margin of 28.9%. This slide shows some financial ratios for your reference and to highlight that equity metric at the end of the financial year was a healthy 0.77x. Now in context with that, I want to show you this slide. SIA announced earlier this month, the company will be redeeming 50% of the rights mandatory convertible bond or MCB issued by the company in 2021. The principal amount to be redeemed amounted to about $3.098 billion, including the accreted yield, it would total $3.354 billion. Redemption will take place on the 26th of June 2023 and you can see the pro forma effects on the various metrics in the table, just highlight improvement to EPS, improvement to return on equity, but deterioration in the debt equity ratio. Now the redemption of the MCB will impact equity, will reduce equity, will reduce cash holding, which we used for the redemption, improve the return numbers. The reduction in equity obviously will impact the equity metric. Now this slide shows the latest group operating fleet movement for FY '23, '24, and we expect a net addition of 6 aircraft for FY '23, '24. CapEx projection table. This is our latest CapEx guidance taking into account the delays in the 777-9 program, the 787 aircraft deliveries as well as the recent agreement, we're going to adjust the group's aircraft order book. This includes swapping 3, 777-9 for 3, 787-10s and the cancellation of 8, 787-8s. Now that's my last slide, and I would like to invite our CEO, Mr. Goh Choon Phong, to present the next segment. So apologies, I forgot to mention earlier, we've got a crowd who signed on virtually. And for those who are online, if you would like to ask questions during the Q&A session, they will take ways after this. You can now start putting in your questions in that box on that chat. Thank you. Sorry, Mr. Goh, please.

Good morning, ladies and gentlemen, once again. Welcome to the STC and also to those who are virtually joining us, good morning, welcome. My presentation today will basically touch on 2 key areas. What exactly have we done during this COVID? And beyond that, what have we done to strengthen our foundation going forward. This slide summarizes our performance in the last financial year, and the performance was explained earlier by Kai Ping. We are reporting a net profit -- record net profit. But in contrast, I think many of you are aware that in Asia Pacific, many other airlines are still having to content with net loss, a significant net loss in the operations. So what is it that allow us to achieve a record net profit. One of the key reasons was our ability to actually be the first off the block in putting in capacity when borders reopened. In fact, you can see from this slide here, that consistently since the borders reopen, we have been ahead of just about everyone else in putting the capacity back into the market. That allow us to be in a better position to capture the pent-up demand whenever a border is open between 2 points. But beyond that one can ask whether it is just a matter of luck or by accident that we happen to be in that position, not quite. So this is by no way an accident. And if you look at some of the internal communications that we have during the early part of the COVID period. Some of you may be aware that I actually sent out a message every month to our staff basically outlining what I think are important developments that we want our staff to take note of. Take a look at this, you can see here that even as early as in the March of 2020, I remember that it is right after the COVID where COVID is beginning to affect globally in February of 2020. As early as much, we are already signaling that we want to emerge strong and we want to be first off the block. You can see in subsequent postings that continue to be a theme and that we are. We want to prepare the organization so that we are in a position to capture those demand when it happens. What do we do? These slides will come as -- should be familiar to most of you. Of course, the first thing is about survival. We went out and raised a lot of money, in fact, from April of 2020 to today, we've raised a total of $23.5 billion, the highest debt any airlines have raised. We went through, of course, the cost cutting, and we were probably among the first airlines to reach out to the OEMs to negotiate a deferment of deliveries and therefore, payment, in fact, as a result, we deferred more than [ SGD ] 4 billion worth of payment from first 2 years of COVID. That is about ensuring that we have enough funding to last -- throughout last COVID. And also to give the rest of the organization confidence so that they can focus on getting ready for the recovery rather than having to worry about livelihood. We concurrently also taken staff measures. But we were very conscious right from the start that we would like to preserve as much of our core resources and that includes our employees as possible because we know how difficult it is to train these talented people when we need them during the recovery. So we are probably among the last airlines who actually went through any retrenchment exercise and we minimize that number. As a result, we're able to retain many of our talented people. And one of the innovative approaches that we have taken is in seconding our staff, especially our cabin crew to help as ambassadors during the COVID period, fighting alongside the frontline people and contributing to a nation's efforts against COVID. Of course, at the same time, we continue to invest to train our people to upskill to reskill and also for their operating crew, ensure that their training remain current. Because of all this, we're actually able then to put back capacity whenever the demand calls for it. So if you look at this slide, you see that -- at any point in time, while we're operating at a certain percentage relative to pre-COVID in terms of capacity, we're actually utilizing more than enough of the resources. For example, in January -- sorry, that's June of 2022, we're actually operating about 50% of pre-COVID capacity, but we're utilizing almost 90% of the aircraft that we have at a point in time, and we are utilizing almost the entire crew population that we have at a point in time, which means that, of course, each crew and each aircraft will have lower utilization, but because all of them are being deployed and all of them have been operated on, we are able to keep our resources operationally ready, which means whenever there is an opening, we can very quickly ramp up and meet those demands. But we didn't just -- during this COVID period, we didn't just handled the crisis. We didn't just prepare to be the first off the block to capture those demand. We went further. We were actually conscious about strengthening our foundation so that the organization can be better prepared and be successful despite the challenges that we can see in the future. And here are some of the challenges, I won't elaborate on that. It is quite self-explanatory. But in some sense, all these challenges are not new to the airline industry, to airlines in general. But because of some of the things that we have done, and I will outline them later, we believe that we are well positioned not just to overcome them, but to emerge strong and successful. Firstly, our brand promise. So service product and network, we continue to invest to go through our all the touch points, in fact, 100 over touch points to look at each of them, ensuring that we continue to provide seamless convenience service to our customers at each touch point. We invest in systems that will allow us to do better personalization for our customers. And we collected a lot of information so that we can customize to service further for the segments that we serve. Products. I think everyone is well aware of what we did during COVID to launch our new SKL at T3. We continue to invest a refreshed T2 launch. At this point in time, a process has started to look at renovating some of the key lounges around the world, so that our customers can experience upgraded routers when they travel with us. In-flight dining is another area that we look at. Here, I would -- I think everybody is aware of the recent launch, recent trial that we had to try to put the bento -- to introduce bento service onto our longer-haul flights. The rationale for us to do that really stem from us wanting to offer more choices, a better experience for our customers. Because these boxes, the way it's designed and the material they made of, not only it is something that is sustainable. It also allow us to offer gravy rich dishes like our favorite laksa, [ porridge ] and all that for our economy class passengers. Those dishes are not possible using the traditional casserole that we currently use for long haul because of the way the [ sealing ] of the box and the casseroles has been done, cannot not retain it. It allows spillage and all that. And the [indiscernible] is actually not cheaper, it's slightly more expensive than our current casserole to offer the long haul. But we -- as of us where we have a negative feedback from our customers, we hear them and I will share everyone that we take them seriously. So the team is now looking at response to ensure that we will meet -- continue to meet our customers' expectations, and we'll continue to look at what improvement we can do. And that includes also some of the items that we might be introducing going forward for our economy class meal. Some of this will take place from June onwards. So I guess we'll -- if you guys are traveling with us, you'll get to see some of these improvements. Products, I think it's well known that we are always introducing industry-leading products on our plane, including that of our seats, especially, I guess, and we were planning to introduce our new business and first class seats and other seats on other cabins for the 777-9s planes. Originally, we were hoping to introduce it this year. Unfortunately, with the Boeing delay, we are looking at 2025. Nevertheless, we will look at what else you can do in the meantime to satisfy some of our customers' needs in the existing planes. But of course, everybody is aware that we also introduced WiFi -- free WiFi for our customers and that will very well received as well. In terms of network, currently, of course, you saw earlier how we are very proactive in expanding our network during this COVID period. But beyond that, we are also building new alliances, new partners so that we can provide even greater connectivity for our customers, better seamless experience. You can see some of the new ones, which are denoted in kind of [ Brown ] phones. And in particular, you can see what we have done in Southeast Asia. I think that is perhaps not surprising given that Southeast Asia is recognized to be one of the highest growth area. And it has a population of close to $700 million. It has a high growth, huge number of travelers with high disposable income that is able to make air travel. So all this means that we will -- all this through these collaborations, we'll be able to introduce more options in terms of routing and connectivity for our customers. Scoot, we continue to invest in Scoot and continue to get Scoot to expand further and the latest, of course, everybody will be aware about Scoot introducing the new E2 planes, which is about 112 seats to allow Scoot to actually serve even more points, especially in the region. Points that previously given existing fleet that we have will not be commercially feasible. Even though -- perhaps it's useful to point out that whilst Scoot recovery was slower in the beginning, and that's primarily because many of the regional destinations were not open during the initial period of the border reopening. But as the region begin to open the borders, Scoot growth actually accelerated. And today, Scoot has recovered to about 90% of pre-COVID capacity higher than that of what SIA have achieved at this point in time. This is perhaps a familiar topic, I would not elaborate more. I just have to say that we are still looking to complete the -- we're looking forward to the completion of the merger by the beginning of 2024. Maybe it's useful for me to point out that in the meantime, Vistara continues to grow. At this point in time, Vistara serve 15 international points, many of the major points in Europe as well as having achieved -- in terms of domestic operation, the second biggest carrier in India after IndiGo. So Vistara continued to spread swing and grow in the meantime. Loyalty program, obviously, is a very important program for us and for any airlines for the members. Our efforts in that area did not stop because of COVID, in fact, we have pushed further. If you compare the number of members in KrisFlyer relative to pre-COVID actually went up 44%. That's quite a huge increase. But not only did the membership went up, the activities level have gone up by 110% as well -- is more active. At the same time, the revenue from KrisFlyer has gone beyond $900 million for this past financial year and that is 19%, 1-9, 19% higher than the pre-COVID revenue. We continue also to develop our new business areas. I highlighted -- I think all these are familiar with our audience here as well and just highlight the Saudi development in the 2 areas, Kris+ as well as Pelago in this slide. An important aspect to support many of what we are doing is really digital -- digital technology. As you know, we are already recognized as one of the leading digital airlines in the world, and we continue to push further to develop a digital mindset within the organizations. And when ChatGPT was known to the world, our team have quickly developed a safe way for our people to experiment with ChatGPT, is a GPT studio within the SIA IT system so that it will be safe. At this point, already more than 50 use cases are being explored using the GPT technology. This is an important area, sustainability and our contribution back to the community. Maybe I'll just highlight that we continue to use SaaS, as in the sustainable evasion field as part of our efforts towards achieving our eventual goal of carbon net zero by 2050. Of course, as we said before, our biggest and most immediate contribution comes from using modern technology planes, I do not have to elaborate more. We continue to take those new deliveries even during COVID period. In fact, we took 36 new planes during that period. Our rooftops in this building here and also our head office [ Ally House ] are now all installed with solar panel. Together, it met 23% of our energy need and reduce the carbon footprint or the carbon emission by 4,300 tonnes. We continue to get involved in community activities to give back to the society and some of them are outlined there. As you guys are probably also aware, we started a new chapter of transformation, we call it lead the New World transformation at the beginning of COVID in 2020, '21, the financial year. We have successfully completed the 3 years, and some of the results actually have been demonstrated through the financial -- the record financial outcome that we have. Going forward, it's not another big transformation program, but it is emphasizing on continuous transformation by various business units across the organizations, and that is underway. So you see, despite that there are challenges out there, we believe that we are in a good position. We are in an area where growth is expected to be the fastest among other economies. We have built great foundations and we continue to strengthen our strategies to ensure that we have a bright future. And with all this, we are confident that we will always outperform and be a leading carrier. Thank you.

Thank you, Mr. Goh. And we will now prepare for the Q&A session. Maybe before I invite the gentleman up on stage, we'll go through the house rules as always. So we'll go to house rules. If you could please indicate to me, if you are keen to ask a question, just raise your hand, and I'll come to you. If I could please request -- we've got quite a lot of people here today and online as well, and we've got very limited time, maybe about half an hour, 40 minutes. So if you could just keep to 1 question each, that will be great. The folks are online, if you could type your questions in, and we will take them as we get through the questions. So joining Mr. Goh and Kai Ping up on stage will be Lee Lik Hsin, who's the Executive Vice President, Commercial for Singapore Airlines, as well as Mr. Mak Swee Wah,, who is the Executive Vice President, Operations for Singapore Airlines. So just give us a minute while we sort the logistics out, please. Gentlemen, please -- may everybody. So if I could ask you to identify yourself when you ask your question, and then we'll take it. First question there, maybe the gentleman there raising your hand and then follow by Greg, please.

Congratulations on this great set of results. I'm Jason from DBS. Just 2 questions from me. So the first is SIA isn't encountering the same stuff in aircraft constraints that are preventing airlines in the region from reinstating capacity. Despite this, the pace of capacity addition appears to be quite measured. Could you maybe provide some insight on -- into the capacity guidance for the first half of FY '24? Second question is unit costs have declined or been largely stable across most cost categories apart from staff costs. Could you provide some color on why staff costs outpaced the slight increase in total headcount to rise above pre-pandemic levels in the second half of FY '23.

I'll take the question on capacity guidance. So we are reaching approximately 80% of our capacity asset end of this financial year, which is March 2023. And we do intend to continue to increase our capacity reaching almost 90% by the end of the new financial year, which is March of 2024.

Question on staff costs. There are 2 effects that you may not see anymore in the coming financial year, depending on how we do. One is that the staff cost -- a big part of the staff cost increase this year is because of bonus provision. So our bonus provision for our staff contracted it more or less, more linearly with the performance of the company. So with a record performance, you'll see also a corresponding increase in provision of staff bonus. The other, of course, is the impact if you compare versus the pandemic years would be the impact of government grants, they were there in the pandemic years, but no longer going forward.

Greg Waldron from FlightGlobal. Congrats on the great performance. My question is more with regards to Scoot. What has been the impact on the A320neo fleet of the issues with the PW1000 by Pratt & Whitney? And well, if there are these issues, does that lead to you potentially extending leases on the A320ceo fleet?

Our Scoot CEO is here. Leslie, maybe you can take the questions.

I think -- thanks for the question. First of all, the GTF engine on the 320neo, I think currently based on what our CEO has mentioned, we are able to add a lot of capacity in the past 12 months, which means that we do not face major issues on the GTF. And we are planning to add more capacity going forward as well. Can you repeat your second question? At the moment, we do not plan to extend the lease of the 320ceos. We are still planning to retire the whole 320ceos by the end of 2025.

Thank you. Maybe we'll go to the 2 ladies right in front here, and then we'll go back there. Thank you.

I'm [indiscernible] for Reuters. So just to follow up on the Scoot A320neo. May we ask how many of those are in the fleet now and how many currently are grounded for let of space? And what is Pratt doing to compensate you or fix the problem. And then our second question is that when do you plan to buy back more of the convertible bonds?

Okay. Currently, we have 15 A320/321neo. None of them are grounded. The 15 of them are actually flying and we are expecting to take more delivery in the coming years to add on to our fleet.

Question on convertible bonds. So we still have 50% of the MCB 2021, $6.2 billion. In total, we are redeeming half of it we have announced. There's still 50% remaining. We have no specific plans at this point in time. Obviously, we -- I mean it is dilutive. We will want to redeem them when we can, but there are no specific plans. It depends on how we perform.

This is Mayuko from Nikkei. Can I -- you had a record RASK, but the passenger yield seems to have went down. Can I have the explanation of why, how it worked. And also, the fare seems to be at quite high levels ever since opening. Can you give us some guidance with mounting capacity by the other airlines, you are talking about the competition. So how does it look like for the -- going forward?

Yes. So I'll take that question. So as we have said, demand is robust in the near term and also across the peak periods of the year, which include the summer and the year-end period. Of course, FS is a function of demand and supply. And so we would have to continue to observe how much capacity other people are putting onto the market and what that means overall. We always try to be competitive in our offering and we actually do offer attractive discounts periodically across all of our markets, including Singapore. So please keep a look out for those. Sorry, the specific question is, are you talking about yield relative to last year? Yes. But last year, looking at the capacity this year and last year -- and last year, obviously, we were only operating a very, very small network. So that's not representative at all.

Thank you. Maybe we had a few hands up there. Maybe the lady behind Ben.

Naomi from Serum here. Just have a question on your fleet adjustments. Could you probably give us some insight on the type swap between the 787-9 and the two 787-10s -- are those due to soft delivery delays, are you hoping to switch so that you can get these aircrafts faster. And relating to the 737 MAXs, with the cancellation of the [ 8 ], could you give us insight on why you canceled? And is there -- are there plans to sort of replace the capacity from this [ 8 ] to another narrow-body type?

So we mentioned earlier that as part of our conversations with the OEMs, we are also looking at how we want to rearrange the deliveries of various aircraft type to better match our outlook of how recovery will come. And that's part of that. And frankly, we do have flexibility in terms of our own fleet, because as you know, some of our planes are actually on lease. And we have the flexibility if there are delays to actually extend these and so forth. So we'll make use of all these flexibilities.

Thank you. Maybe we'll have the 3 gentlemen here in the front row starting here.

My name is Raymond from CGS CIMB. My first question is on the cargo business, where the profits have been slightly quarter-on-quarter for some time now. I'd like to know what you can do possibly to mitigate that decline given that the market is weak, but is there something else that you can do to slow that down? And the second question is on cost per ASK. So I'm comparing the fourth quarter with the immediately preceding third quarter. And I noticed that for SQ, the cost actually went down by 2% quarter-on-quarter, but for Scoot, it went up by about 9% quarter-on-quarter. This is based on your disclosure. So I'd just like to understand why there is a discrepancy there.

So I'll take the question on cargo. Obviously, we cannot affect external conditions. And as we have said and as many people have noted the external conditions for the cargo market are not great right now. But we are in a good position to continue to hold our own in the market to capture share because of our very extensive network. Because, as mentioned, we are the ones with put back the most capacity into the market compared to other carriers. And also, we had our various other strategic pillars, including partnerships with key players like DHL to continue to support our network and also the Singapore hub.

Thank you, Raymond, for the question. You always make me look for the numbers, you always ask the difficult question. The reason actually is because of the ForEx. So if you recall, quarter 3, we had a rather upsized ForEx loss, that's partially neutralized in quarter 4. So the impact on SIA and Scoot is different, because SIA has -- is currently temporarily net long in U.S. dollar because we raised U.S. dollar bonds, and we did a couple of sale-leasebacks. Now it's temporary because we are normally net short in U.S. dollars because the fuel is in U.S. dollars, aircraft in U.S. dollars and so on and so forth, most of -- a lot of our expenditures is in U.S. dollars. Now when that comes about, the U.S. dollar will be utilized. We normally hedge by U.S. dollars to hedge, but now we are net long in U.S. dollars because of the fund risk. So when U.S. dollar moved in Q4, strengthened to a royalty basis to a Sing dollar than the SIA -- positive impact on SIA, negative impact on Scoot that's the reason. I would encourage you to look maybe at the half. So on a half basis -- 2H, the effect more or less neutralized.

Roy from [ UBK Han ]. I have 2 short questions. The first is on the dividend policy. With the company's balance -- strong balance sheet position today, what is SIA's target payout ratio going forward. I would like to have a sense whether this absolute dividend, which is very high last year or whether it's sustainable going forward? The second question is regarding the merger with Air India. I understand it's on track. But I think in the media, the Air India, he said that Air India is on track to turn around in the past financial year. Can SIA provide some additional color of visibility on Air India's profit turnaround?

Dividend. We don't have a published policy. So dividend is something that the Board will look at based on the financial results, and the division will be based on a judgment of the Board at a point in time. Of course, it is the usual thing come into consideration. Your balance sheet, your projections of need for funds going forward, et cetera. So that's what it is. Air India, I think at this point in time, we are not a shareholder of Air India yet. Until the integration takes place, and that will not be until beginning of next year. So really, any questions about Air India's financial and so forth, you got to direct it to Air India.

And the gentleman there beside Mayuko followed by Brandon. And then we'll take some questions online.

Louis from Credit Suisse. Just one question maybe for CEO, Mr. Goh. I think you have been the CEO for close about 12-odd years or so now. And I think last month, there were some management appointments of your Chief Commercial Officer and Chief Operations Officer. So perhaps if you can shed some light on the leadership transition or succession planning and some time line and what we should expect of the group strategy after that transition?

So SIA has always paid a lot of attention in developing our talent and in ensuring that we have a strong bench. I mean, the fact I mentioned before the fact that one of our colleagues, Campbell was actually identified and determined to be the best candidate to take up the CEO position and [indiscernible] testament to how strong our bench is. We will continue to have renewal and we'll continue to expose different members of our management team to different areas. And this is really part of that development that we have to ensure that our bench continues to be strengthened.

Thank you. Brendan, did you have a question?

Brendan Sobie, independent analyst. I had 2 questions. My first question relates to the time line for 100% capacity restoration. And if there's any impact on that from all the delivery delay issues like with the 777X. Obviously, you've done very well in the first year being higher than competitors, as you pointed out. But soon you're going to be lagging behind competitors. And I was just wondering if that's a strategic concern and if you have any opportunity to like bring in secondhand aircraft or do something about that? That was my first question.

So I mentioned earlier, yes, because of the delay in the 777-9, we do have to look at extending some of the leases that we have or extending the use of some of the aircraft that we have, particularly the older 777-300ER. So those, we determine to be sufficient to mitigate that deferment of the 777-9. Now if you were to look at the overall capacity and the projection, I mean, IATA projected that in -- for Asia Pacific, things are not going back to pre- COVID internal capacity until 2025. I think we will be well able to handle that kind of recovery.

Okay. And my other question is just about the current outlook for -- I know you had quite optimistic wording in the press release about the current quarter. But I was just wondering specifically about regional travel within Southeast Asia. There's been some indications from other airlines and for this regional market, maybe it's more of a Scoot market than an SIA market. But about some weakening in the month of May already in terms of demand, both load factors and yields, just with competition capacity coming back in. I'm just wondering if you noticed that at either of TR or SQ.

Yes. So regional markets, you mean mainly Southeast Asia, I suppose that's what you meant -- when you say regional. Yes, right. At this point in time, we are still seeing very strong demand on Southeast Asia flight. It's not just SIA but Scoot as well. So we haven't quite seen any weakening in the near term at least.

We'll just take some questions which came online right now. Thomas Shum from Reuters Breakingviews. When is Singapore Airlines expected to return 100% of pre-capacity, prepandemic capacity. Why is -- are you at 80%? Is it because of staffing issues? And how do you plan to deal with ticket price inflation?

I'll take the question on ticket price inflation, which actually have already answered. Ticket prices are a function of demand and supply. We -- and we always try to be competitively priced in the market.

I think capacity.

Capacity is whether it is related to staffing. Yes.

Capacity is in line with what we said. We actually have taken quite proactive steps in hiring new staff. In the slides earlier, I didn't elaborate but you could see that we started hiring -- rehiring new cabin crew from February of 2022. Now that's before Singapore actually opened up its border to the rest of the world and also others opening up to Singapore because that took place only in April. And since then, we have recruited some about 3,000-plus new crew. Of course, they have to go through training and all that. So at this point in time, we are actually recruiting sufficient crew, but they have to go through the training.

We have one question from [indiscernible] from Morningstar. My question is about China's reopening. Could you give some color about the expectations around the reopening of China? Are you seeing load factors supported by China travel. Does the limited routes by the Chinese airlines benefit SIA, or benefiting from the limited services international services?

So we are extremely excited about the reopening of China. Obviously, it has -- it will take some time for everybody in the industry amongst the stakeholders to be totally ready. This includes, for example, 2 operators because a large part of Chinese travel is leisure travel through operators. And of course -- and truth be told that is not ramped up exactly 200% at pre-COVID level yet. But it is starting to come in, and we are optimistic about the full resumption. There was a second question about capacity?

Yes, the capacity -- just the fact that the Chinese carriers have limited international capacity at this point benefit SIA.

I'm not sure that the Chinese carriers have limited international capacity. You will see Chinese airlines all operating to Singapore, just that Singapore Airlines and Scoot is operating to China as well.

Okay. We've got a question from Kaseedit from Citi. CASK ex-fuel is down 9% quarter-on-quarter, very impressive. What are the key drivers? And how far can CASK ex-fuel go down? How much further can it go down?

Yes. I think I answered that question already, the question Raymond asked.

Okay. We've also got Tim Beckers from Bloomberg asking. We understand that fuel hedging gains are difficult to forecast based on current profile and direction based on current profile, and direction of spot prices. Can you comment on hedging gains in '23, '24 relative to the $749 million from'22, '23. That would appear quite challenging. He says.

Fuel hedging is a random walk. Smartest people in the world trying to model it. So I will not be able to predict. That's precisely the reason why we hedge to take out the volatility in the cost of fuel.

Thank you. Questions from the room, please? Okay. We'll go with Peck Gek and then we've got some questions there.

Peck Gek from the Business Times. SIA has posted record earnings in the 76-year history. So what is holding back SIA from beginning the 50% MCB. It has done so well. So what else does it have to do for it to redeem 50% MCB. And also for the passenger yields, I think [indiscernible], I think she was referring to quarter-on-quarter, there was a slight decline in passenger yields. Does it mean that there was a slowing recovery and should passenger yields and fares ever normalize, what are SIA strategies in handling the decline.

I'll take the question on MCB. And I think Lik Hsin Lee will answer the question on passenger yield. Now the decisions on MCB affect equity, affects the shape of the balance sheet. So these are long-term questions. These are not short-term questions, right? So we have to move step by step. And that's exactly what we're doing. Strong performance is really the reason why we're in a position to announce a redemption of 50% of MCB 2021. Now as for the remaining 50% of the MCB 2021, I have answered the question before, we have no definitive plan at this point. We have to take a very long-term view when we come to the decision. Thank you.

Okay. In regards to yields, firstly, the 4Q yield versus the 3Q yield movement is not large. And then secondly, of course, there is also a seasonal effect, 4Q being traditionally a weaker quarter than 3Q. 3Q covers the year-end peak. 4Q is January to March. On the question of whether passenger use will ever normalize and what would SIA do? I think, firstly, pricing and yields are functional demand and supply, as I said, so we cannot control that fully. But everything that our CEO has said in his entire presentation about how we are positioning ourselves to be much stronger, should provide some confidence that SIA will continue to do well, whatever the external environment.

Toran from Air Transport World. A follow-up question on the fleets. Other than mitigating delays, are there any changes in the market that led to this decision as the consumer -- the market? And another question is on slots. The third runway in Changi Airport will not be ready until late 2025, '26. Do you think that might stem your expansion in the medium to long term?

Yes. Okay. Let me deal with this. I think the question is around the swapping of the 787-9 to the 787-10 and the 787-8, is completely network driven. So the 787-10 is a bigger aeroplane. So we are basically increasing the count on certain mission and the 737-8 is similarly driven by the network. So it's just a view on how we think demand will evolve and how we think then we have to evolve the network. It's just adjustment in emission. Yes.

Well, slots is obviously an important aspect of our operations. So actually, it's not nearly between now and '25, '26, but it's actually between now and when T5 will eventually be ready because in between, really, there are very limited capacity to add. However, it's like Singapore, we always look at things in advance and doing quite proactively. So at the moment, we are actually working very closely with our ecosystem partners, including the airport to look at what is it that -- some projection of what is it that we are expecting in terms of growth, both SQ as well as TR? And where can we operate from and how are we going to address if there are slots issues in the interim. So this is an ongoing discussion. It's a very healthy discussion, and we expect that there will be some solutions as a result.

Maybe we'll have the 3 people there.

[indiscernible] from CNBC. I just wanted to ask a bit on the Morningstar question for the China outlook, because this is the first full quarter that China has lifted its travel restrictions. I want to ask if SIA has any observations on this quarter? Was there a spike in China bookings to and from China and perhaps, is it driven by corporate or leisure travel?

So as I said, we are excited about China. And as you noted, it is the first quarter that they are open and so obviously, things would not have resumed immediately to the pre-COVID levels, and you can see that increasing our capacity back to China. We have also not yet increased our capacity back to China to the pre-COVID level. In terms of market segments, I would say it is similar to other markets where borders first started to open, you see demand across all segments, driven by both individual travel as well as corporate travel with a particular strength in family travel, what we call visiting friends and relatives, family needing to travel across the 2 countries to reunite. That was the case for all the other markets, and we see that in the China market as well. Thanks.

Thanks for the presentation. [indiscernible] . So I have 2 questions. My first question is about sustainable aviation fuel. So do you have an update on yourself use following the pilot last year. What are your plans for starting the coming year? And what has been the passenger response for carbon offsets available since June 2021. And my second question is I know that staff costs have doubled year-on-year, there's around $3 billion. So are you seeing any stresses on staff count? I know you mentioned earlier that you have 3,000 staff in training. What are your pilot and cabin crew numbers like compared to pre- COVID levels?

So I will take the SAF questions and Kai Ping will take the other one. Yes, the pilot we have done and we are actually looking at purchasing -- going into a contract to purchase more SAF. I suppose more details will be announced until we settle all the agreement -- settle the agreement with the supplier. Carbon offsets pickup by passengers, I guess you're referring to. At this moment, I would say the takeup is not strong. So we will continue to try to encourage. And -- but at the end of the day, we'll be really up to individual passengers to decide what they want to do.

Question on staff cost. Now I shared just now to one of the questions on staff costs that year-on-year you see 2 outsides impact. One is provision for profit sharing bonus because of the record profits. Second is the absence of government grants as we move forward. Now other than that, there is wage inflation. It is not out of line with Singapore wage inflation, it is in line. In terms of year-on-year staff account at the group level has increased by 12.3% to support the operation. So we ended the year basically at slightly over 24,000 people.

Just add that if you were to look back in history, you'll find that SIA as an organization has always been very good at managing the cost -- any cost escalation. In fact, as a full-service carrier, we're probably one of the most cost-efficient one.

Maybe we'll go to Wen with a question, I think.

Wen from [indiscernible] . Just a question on Scoot and decision to buy the Embraer jets. For the longest time, SIA has stuck to Boeing and Airbus. And previously, when I've asked management, they've always said complexity and cost issues. So they won't go into other brands. But something has changed. What changed? And can you add color as on what your plans are, where do you plan to deploy these planes and whether this is something you're going to continue in the future, looking at other brands as the market develops?

I will just take a high level and then I'll get Lik Hsin Lee to elaborate. Basically, we do not -- I think our assessment of what we want to bring in as in fleet partner. Really, it would depend on our own -- our assessment of whether it is a fleet type that makes sense for the operation we intend. And you see that we actually do not have smaller planes than the A320s that the Scoot is operating and frankly, for some of the destinations in our region, which is fast developing, huge potential. We don't have viable planes. So the question is whether those markets are there and whether we think they are commercially viable. And in this case, we do think so. But please.

I think going back to what CEO has mentioned, we believe that from a Scoot perspective, the Southeast Asia market is really a market that we can continue to grow quite extensively. And if you look at the Southeast Asian market, there are a lot of secondary cities where our current A320neo, which has a seat capacity of 186 would be too large for many of these second and tier cities. And we have done a very robust RFP and we look at which aircraft type actually will feed our mission more from a commercial perspective as well as operational perspective. And we decided that Embraer E190-E2 is the best fit for us. As to where we are deploying this aircraft, definitely within the region. This aircraft can fly up to 5 hours. It will be deployed both on existing destinations that we currently fly because we can add frequency as well as new destinations within the region. Once we decide the new destinations, we definitely inform the trade as well as the media. We are looking at receiving the first aircraft sometime in March 2024. So slightly before that, we should be able to announce some of the destinations that we will be deploying this aircraft type. Thank you.

Maybe I'll just add that, in general, even though if we evaluate certain propositions and it's not viable at a point in time, it doesn't mean that we will give up on that proposition. It just means that we'll review it again. Economies do not stay still, they developed. What used to be perhaps not so feasible in the past because the economic activities doesn't support it, could become viable as the economies grow.

Thank you. a lady over there and then maybe 1 online question and we might have to end soon after that.

It's Evian from OCBC Credit Research. I have 2 questions. The first one is, on the newer growth initiatives, such as our KrisFlyer and KrisShop, is this currently part under SIA revenues? Are you able to share more color, say, for example, what's the percentage contribution to operating profit or maybe some kind of growth rates? And the second one is just more of a clarification question. So on your hedging slide, should I add the MOPS and the Brent percentage to get a total percentage of the fuel requirement that has been hedged?

So maybe I'll just take the questions on the various new businesses. At this point in time, we do not announce the P&L impact of individual businesses. Some of them already internally been tracked, but we don't make public those information at this point in time. But you can see that we are sharing more information, for example, decreased 5 year revenue. We have, in my presentation to say that for last year, it's more than $900 million, which is quite a substantial number.

Yes, specifically to the hedging slide. Yes, you add the 2 columns. So if I can just give an example just to make sure we are clear. So between Q2 and Q4 of FY '23, '24, we are hedged at 39% of expected volume, 10% is in Brent and 29% is in MOPS. Okay.

We have a question online from Sean from JPMorgan. He's asking how is business travel, corporate trouble trending year-to-date?

Corporate travel as a whole has recovered nicely. It is not yet at the pre-pandemic level, but it is far, far above some of the very, very pessimistic projections that people had at the start of COVID where everybody was supposed to only have online meetings.

Thank you, Lik Hsin. Are there any other questions from anyone?

Louis from [indiscernible] . Can you give us some light on the seat mix? Do you plan to invest more in certain class of seats?

I think as you know, we always take opportunities to improve our products for our customers and you refer specifically for seats. Examples of that is the seat retrofit that we had for A380s. At this point in time, all the A380s that we operate are equipped with the latest seat products, which I would say, have been very much welcomed by our customers. So we'll continue to do that. And I mentioned earlier that we have actually developed new seats -- customized seats for our 777-9 planes. And based on what we can see in the market and based on what we have designed, we believe that those seats will be industry-leading when they are launched with the launch of the 777-9.

Thank you. And I think we might be about done. Okay.

Yes. Can I track if SIA has encountered any ground handling issues, for example, delays in baggage handling?

I think baggage, because of the well-known issues that ground handlers have all around the world has actually been the incidence of mishandling has gone up. But our people have taken -- we actually have a dedicated team and task force looking into this. I'm glad to perhaps share that in recent months, that has improved significantly because of the priority steps that our chaps have taken.

Great. I think we're done. So thank you, everyone. Thank you for coming down this year. Thank you for your time, and we'll see you in 6 months' time. Have a great day, everyone. Thank you. Thank you, gentlemen.