Singapore Airlines Limited (C6L) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the Singapore Airlines half year Media and Analyst briefing. I'm Siva Govindasamy from the Singapore Airlines Public Affairs Department. Very happy to see everyone here. We will start now at 9:00 a.m. We will go through the usual format. We'll first have a presentation on the financial results followed by a presentation on the group strategy and then the media Q&A session. And for those who are online, if you want to send some questions, that little chat bot will open for you, and you can send your questions from there, and we'll take them during the Q&A session. So without any further ado, please could I invite Balagopal Kunduvara, Divisional Vice President, Financial Services to deliver the financial results. Bala, please.

Thanks, Siva. Good morning, everybody. It's my task today to take you through the first half results for the SIA Group. Let's start with the highlights. The headline is really, we made an operating profit of $796 million for the first half, 49% lower than a year ago, no doubt, but still with an operating profit margin of 8.4%. Let's look at the key components that made up this number. On the revenue side, revenue for the first half came in at $9.5 billion, up 3.7% year-on-year. Looking at the 2 key components that make up the revenue. Passenger flown revenue was up year-on-year driven by higher passenger traffic, partially offset by the lower yields as we saw increased capacity and competition in key markets. Cargo revenue was also up, driven by higher loads as e-commerce demand remained strong, and we also saw spillover effects from disruptions on the shipping side. Looking at the expenditure side. Expenditure came in at $8.7 billion for the first half, up 14% year-on-year. Again, looking at the 2 key components, net fuel cost was up almost 20% year-on-year, driven largely by: one, higher uplift for the first half as well as lower fuel hedging gain compared to the previous year. Nonfuel costs were up 12.1%, largely in line with a 10.6% increase in capacity year-on-year. What that meant is that net profit was at $742 million, down 49% year-on-year, primarily driven by the operating profit numbers. The Board has declared an interim dividend of $0.10, which is essentially the same as last year, and this will be paid on 11 December 2024. Before we go into the details, let's just also look at the operating results of the 3 main companies in the group. All 3 made profit for the first half. For SIA and Scoot, the numbers were lower than last year, and we will go into those details later. For engineering company, the scale of operations grew, revenue went up, expenditure went up as well. As a result, operating profit went up to $3.4 million for the first half. Before we look at the financials, let's look at the capacity numbers since that represents the production of the group. For the first half, passenger capacity grew 11%, cargo went up 10.2% and putting it together, overall capacity went up 10.6%. For Q2, the numbers were around 9.6%, 9.7%, however you look at it. Looking at the table, the traditional table of results. I've already touched on some of this on the earlier slide. So this is just the same data, but I also have the Q2 numbers inside here. So let's now take a deeper look at the revenue and the expenditure picture, starting with revenue. On this chart, you can see the quarterly progression of our group revenue. Q1 and Q2 revenue numbers were higher than the corresponding quarters last year. So let's look at the key metrics that make up the revenue, essentially the unit revenue figure, RASK as well as the passenger load factor. Now you can see that RASK came in at $0.08 for first half, while PLF was 86.4%. Both these numbers are lower year-on-year, but as the chart shows on the screen, it is significantly higher above the levels that we have seen pre-COVID. So let's look at the individual airlines as well, and you see a very similar picture where RASK still remains above the pre-COVID levels. Moving on to cargo. Cargo loads were up 20% relative to a capacity increase of 10.2%, which actually led to the load factors moving up by 4.7 percentage points. Cargo yield continued to hover around the $0.36 mark for the third quarter running. Now let's look at expenditure. Again, we started the quarterly progression. And you can see that whether you look at it on a first half basis or a Q2 basis, the increase was up roughly 14% year-on-year. And so let's look at the key expenditure components. Many of these items here, such as staff costs, depreciation and leased aircraft charges moved in line with the increase in capacity. As for fuel, I'll touch that on a later slide, so let's focus on nonfuel items first. So while some items moved in line with capacity, we also saw the impact of inflationary pressures on certain items like handling charges as well as passenger costs, which grew more than the capacity increase. AMO, on the other hand, was lower year-on-year as there were some adjustments made to redelivery provisions for leased aircraft. In the absence of that, the AMO increase would have come within the capacity increase. Fuel, as I mentioned on the first slide, the fuel cost was higher, largely driven by 2 things: the higher uplift as well as the lower fuel hedging gain compared to last year. Last year, if you recall, we had the benefit of pre-COVID slides -- pre-COVID hedges. As opposed to that, this time around, the hedge book is largely in line with prevailing forward prices. We also had some benefit from a slightly lower fuel price, but some of that was given up as U.S. dollar strengthened against Sing dollars. I also have a slide here, which shows you our hedge book as of the end of -- or middle of last month. As we have described before, we work off a declining wedge basis, targeting 40% to 50% hedge position for the nearest quarter, and that is what this is. And the lower part of the table just shows that we still have 2 quarters of gains from pre-COVID hedges that were closed out, which will be recognized as we go through the rest of the financial year. Putting it all together, the group operating profit was as shown on this chart. The progression here clearly shows the moderation that the industry has or is going through after 2 extraordinary years. Let's also now try to look at the year-on-year progression here. As the previous slides have indicated, revenue actually increased, but was not sufficient to offset the increase in costs. We have touched on most of the cost items here, but I'll just touch on the last bar under others where there was a $69.1 million impact as we recognized a foreign exchange loss this year compared to a gain last year. This was largely due to the weakening of U.S. dollar against Sing when you compare across the 2 periods. Net profit, a very similar picture to what we saw for the operating profit number. Again, the moderation is quite evident in this chart. Looking at the year-on-year progression, you can see that the lower net profit was really driven by the weaker operating profit. Net interest income was also lower as our cash balances dropped year-on-year. And there was also a loss on disposal of aircraft, spares and spare engines compared to a gain last year. Now this was partially offset by a higher share of gains from our associates as well as lower tax expense, which is largely driven by the weaker operating profit. Putting the financial results into a summary slide. The key metrics here are the EPS, the EBITDA and the EBITDA margins are on the slide. They do -- they are lower than last year, but I think I want to highlight again, 8% plus operating profit margin and more than 24% EBITDA margin. These are very strong numbers compared to our historical performance pre-COVID. We also have a chart to summarize the financial position of the group. Cash balances were down $2.2 billion from 31st March 2024, largely because of 2 actions: One was the repayment of the final -- the remaining part of the MCBs as well as the dividend payment in August. I would also like to highlight that we are now showing an additional line here under cash balances so that you can also see the deposits that have been placed out with longer maturities. And so you get a full picture of the liquidity of the group. Two more slides I wanted to touch on, which is our typical half yearly update. The first one is the fleet plan. We are now expecting to end the financial year with an operating fleet of 204. Now for those who compare that against our guidance from May 2024, you will notice that, that's 5 aircraft less, and that's essentially a result of 5 deliveries now expected to happen only in '25, '26 as opposed to within this financial year. My last slide is on the capital expenditure projections. These numbers are based on our contractual positions with the manufacturers. We have seen Boeing's message in October talking about the 777 delivery happening only in 2026. We can only determine the exact impact on our projections once we have certainty on our own delivery positions, and we'll give you an update on this during our future updates. With that, I come to the end of my part of the presentation, and let me hand over to our CEO, Mr. Goh Choon Phong.

Thank you. So good morning, everyone. Welcome to STC again. My presentation will be in 2 parts. I will talk a bit about the challenges facing the industry, and then I will talk about some of the strategic initiatives that we have taken that we believe will position the Airline Group well going forward. This should be a familiar chart. So I will elaborate on a couple of items on this chart. Firstly, about competition. So as you know, the competition came from also the -- largely from the additional capacity that's been injected in the industry. And as a result of the injection of capacity, we are seeing softening of yield. And in this case, relative to year before, which is the year '23, '24, you see the corresponding yield decline in quarter 1 and quarter 2. However, we must remember that the year '22-'23 and '23-'24 were exceptional years. I believe all of you would recall that because of the preparedness that the SIA Group has done in ensuring that our resources were operationally ready throughout this pandemic period so that we can actually come back whenever that we see a demand increase in the market. And in fact, we were almost always the first to inject capacity in the market when the borders start to open. And as a result of that, we were able to capture those early demand, the pent-up demand at the point in time. And as you would recall, during that period, the demand far exceeds capacity, and therefore, we were able to command a high yield during that 2 years. But if you look at in perspective, the quarter 1 and quarter 2 yield in this financial year relative to the pre-COVID period, you see that it's a significant increase from the pre-COVID corresponding quarters, in fact, a 12% increase. Now of course, on the other side, you have unit cost. This is a unit cost ex fuel during the '22 -- '23-'24 financial year. And this is this financial year, first 2 quarters. And you can see that relatively flat for this financial year over the 2 quarters. Of course, if you were then to compare with the unit cost pre-COVID, you could expect that this unit cost would have been higher. And indeed, it is. But relative to the yield improvement that you see in the earlier chart for the corresponding quarter relative to pre-pandemic, the yield went up, you recall about 12%. The unit costs have gone up 5%. You do expect the unit cost to have gone up because post-pandemic, many costs have gone up. Bala earlier have showed you how the passenger cost as well as the handling costs have gone up, handling costs close to 20%, and we know why that is so. And the reason why we are still able to maintain a relatively flat unit cost ex fuel was because of the successful transformation that we've gone through and the ongoing continuous work that we are doing to make sure that the costs remain under control. Supply chain. This is a well-known issue in the industry, affecting both new aircraft delivery as well as supply of parts. Here, again, we have taken proactive actions even earlier on to ensure that you see all the bullet points up there is to allow us to have better access to spares and also to create local supply of spares as well as repair capability. Now many of the repair capabilities onshore are setups that has been done before. SAESL, the Rolls-Royce joint venture; Eagle, the joint venture with Pratt & Whitney and others, they actually allow us because the onshore capability, ability for us to turn around those repair faster and, therefore, supporting the fleet in a more effective manner. Hence, despite the supply chain issue being around for quite a while, certainly the last couple of years, we were able still to achieve a good increase in our capacity. This is, again, should be a familiar chart. And again, I would like to highlight a few key areas that have the most changes. And these are the 4 key areas that I will touch on. Brand promise. We continue throughout COVID and even throughout the last quarters and going forward as well to ensure that we improve on our customer service, our product and also to increase our network. We have announced new flights, both Scoot's and SIAs and continue to expand our capacity to meet demand out in the market. On product leadership, you would have heard our recent announcement to introduce the new products on our existing A350s. This will be a retrofit, and we will spend $1.1 billion on this retrofit product. In case you miss it, here is the video that we had announced together with the announcement. [Presentation]

So you would have heard about new product launches by other airlines during this couple of years. Although these new products that we have been working on were meant to be introduced, of course, earlier with the 777-9. But with the delay in the delivery of 777-9, we continue to look at what enhancement we can make to this product that we newly designed from ground up and to continue to improve it. So our customer experience division will always look at whatever new product that's out there and check it against our product that is to be launched. And at this point in time, we remain confident that the products we are introducing will continue to be industry-leading when it is introduced in 2026. This is another area to illustrate our proactive actions. You can see the number of KrisFlyer membership continue to go up. In fact, the last count, you can see here in Q2 -- end of Q2 that are reaching 9.4 million. And you can also see that the increase has been continuously strong. And if you compare to pre-COVID, we have gone up more than double in terms of size. You can be rest assured that we'll continue to leverage this membership so that we can reach out to more people and to encourage them to both fly on us as well as purchase other products that we have on offer. So continue to take on new delivery of E2. In fact, we have 4 right now. The fifth will come in by the end of this year, and we expect 4 more to join the fleet next year. And with that, we'll be able to continue to increase our footprint, particularly in Southeast Asia. We also continue to forge stronger and wider partnerships across different areas in the industry, and 2 of the more recent developments are here. You would have heard about it because we have made announcements about both collaborations or enhanced collaborations, in this case, with Air India and Garuda. We'll be making another announcement very soon to update some of the collaboration efforts, and you should hear in the next few, I suppose, days or next week. Air India, we are almost completed with our merger between Air India and Vistara. So we will be, of course, making that announcement very, very shortly. Some of you might have noticed that the Vistara flights will be renamed to Air India flight sometime by the end of today. So you can expect the merger to take place very soon. So on the other impactful areas that we have been focusing on, is the use of technology and, in particular, GenAI. And here are some of the quotes, some are comparing the impact of GenAI to electricity to the Internet and more. But what is very clear is that it is an area that we feel we must have a strong position in and continue to develop the capabilities. If you look at this chart, you would have noticed that we first noticed the impact, potential impact of GenAI way back in August of '22. This is significant in that the ChatGPT was only introduced to the public in November of 2022. And since then, we have done a lot to ensure that we acquire the right capabilities. The GenAI Blueprint was developed a year later from August of '22. And in that, we actually highlight or rather we specify the focus that we will have in applying GenAI, the business area that we want to focus on, which I will elaborate a little bit later. It is also very clear to us that the way we want to introduce GenAI must be agile, and we must be able to test ideas very quickly and to be able to let it go if it doesn't work. It is also very important for us to manage the risk associated with the introduction of this new technology. And there are many. I mean, you would have heard about how GenAI can lead to hallucination and all of that. Plus, the regulations that has been popping up from different parts of the world about how GenAI governance should be managed. And all these are part of our GenAI Blueprint that we have put in place to ensure that as we adopt and develop our capabilities, we are able to manage the risk that are associated with it and the proper governance to guide its progress. But I would just want to point out one very important aspect, which is people. It is a new technology, and we believe it will be pervasive. In order for us to be effective in using it, it has to be something that the entire organizations understand how to use it, so we are paying a lot of attention on our people. We want to bring our people along as we get on this GenAI journey. So far, we have done quite a lot, over 240 use cases, of which 28 have been completed and introduced. And there are various examples here. You can actually read through the slides that have been given out. Just give an example, the chatbot that Scoot used to have. With the introduction of the GenAI chatbot and even at a very, I would say, quite a rudimentary level, we have seen more than 20-point improvement in the customer satisfaction. So with those developments that we have seen that I've updated earlier of the strategies that we have taken and importantly, where we are situated, we believe that we have a strong future. If you look at it, ASEAN or Southeast Asia and India are widely recognized to be the 2 of the highest growth regions in the world. ASEAN with its more than 670 million or so population and India, of course, now the most populous state in the world. And we are well positioned on our own as a group to actually reach out to this growth region. In ASEAN itself, we serve 39 points between ourselves and Scoot, I mean, SIA and Scoot, making us one of the biggest, if not the biggest operator or number of points -- in terms of number of points reached within Southeast Asia from one airline based in one country. And India, we have 13 points. And with that, too, we are one of the biggest airline operating to India in terms of number of points served outside the Indian-based carriers. But not only that, not only just our network, we have been building partnership. So in the case of ASEAN, we have had MOU signed over the last couple of years, last few years with all of the major ASEAN carriers. And in particular, we have been pushing for deeper collaboration with Garuda, and Malaysia, Malaysian Airlines because these 2 countries are the nearest to Singapore. Similarly, for India, with the investment, with the merger of Vistara and Air India, we will now have 25.1% of that combined entity. Now the combined entity is not just Vistara and Air India, of course, it is also amalgamation of Air India Express and what used to be AirAsia India. So it is a sizable group, again, like in the case of SIA Group with the ability to tap into both full service and also to tap into the LCC market. And importantly, Air India with the Air India setup, it has also inherited both valuable rights to operate to key cities in the world as well as the slots associated with it. So with the investment, we're able to participate directly in that growth, and we all know how -- what's the growth potential that India could bring. Of course, Air India is going through transformation, and we are determined to help Air India in their transformation efforts and journey. So with that, this is my last slide, again, to summarize it. We strongly believe that with all those strategic initiatives that we put in place, with the geographical positions being situated in both the very high area of growth and also the unique opportunities that we have to participate directly in the Indian market growth that we will be able to handle the challenges that we have highlighted earlier and, importantly, to continue to be able to grow the group alongside with our partners. Thank you.

Thank you, Choon Phong. We'll now move to the Q&A segment. We will have -- we are a little bit tight of time today, unfortunately. So we'll need to keep it quite tight. [Operator Instructions] So I would now -- while we set up, I would like to invite Choon Phong and Bala back on stage. And to join them, we will have Lee Lik Hsin, our Chief Commercial Officer. We will have Tan Kai Ping, our Chief Operations Officer; as well as Leslie Thng, the CEO of Scoot. So let's start. Who would like to go first? The gentleman over there, please. Thank you.

Gurdip Singh from Press Trust of India. You are spending a lot of money on enhancing the experience of passengers traveling on your flight. Given the recent scare that we heard and read and reported on Air India flights, what are you doing in terms of in-flight security for passengers?

I can't comment on the specifics of security arrangement for confidentiality reasons for them to be effective. But we are in touch with all the security agencies around the world, including our Singapore police force as well as the US TSA and so on. So the threat evolves and our security arrangement evolves. We are in full compliance with all the regulations as well as the guidelines from all security agencies.

Thank you, Kai Ping. Maybe we'll go to Danny over here. And then over there.

Danny Lee from Bloomberg News. Now noting the outlook, the airline talked about being nimble and agile going forward. Just looking at the presentation, we look at second quarter capacity up 9.7%, overall first half up 11%. Can you give some color about how the capacity looks going forward? Is there likely to be significantly less capacity added into the market because of competition overall? Or are you holding back to wait and see how the market plays out? And then separately, on that, where is the intensifying competition coming from? Is it more short haul or is it long haul or both?

We do not hold back on capacity growth just because there's competition in the market. That's not what Singapore Airlines has done in the past. It's not what Singapore Airlines will do in the future. So we intend to continue to grow. Of course, we will adapt and put the growth to where it is of best use to us. The intensifying competition is coming from all over. It's really global that other airlines are putting back capacity, really recovering to their pre-COVID capacity. So I wouldn't highlight any specific area. It is really across all of our network.

Thank you, Lik Hsin. The lady over there, please.

I'll just add that if you look at our load factor, it's consistently still very strong. So -- and in our press release, we did say that we expect the demand to be healthy.

Thank you, Choon Phong. Yes, please.

Tabitha from DBS here. Could you elaborate further on the drivers behind the steep 9% decline in passenger yields for the main airline? Was it a broad-based reduction in yields? Or was it more pronounced in any particular customer segment? And should we expect the decline to moderate or accelerate in the coming quarters?

It is broad-based decline across all of our segments. So it is in economy class as well as in business class. We do expect the yield moderation to continue. But as pointed out in CEO's presentation, you will see that the yield lines are still quite healthily above the 2019 pre-COVID levels.

Can we get the next question, please.

Chuanren from Air Transport World. Question on fleet. I believe you have only one wide-body aircraft entering the group in the next 6 months. And I believe that's the last wide-body that you have on order. What are your short-term plans for wide-body given that the rest of the other product is delayed for until '26?

Yes, we do have -- we're expecting one more, the 350s coming in. And yes, there are going to be delays in the 777. As you know, Boeing has announced that it's now 2026. But one thing I suppose we -- I should add is that when aircraft delivery, they come in at a different time of the year. And so some aircraft that come in previously at the later part of the year, they do not contribute to capacity for the full year. So then the following year will be full year and, therefore, that also add to the capacity growth. Second thing is maybe you didn't quite ask this, but maybe I'll just elaborate anyway is that the 777, although Boeing have announced that it is going to be 2026, and we usually will have some message from Boeing on the expectations. The way we have been planning has always been to look at what the Boeing tells us, and we will actually plan for something that could potentially be worse than that. And then we will then see what are the levers we could pull in order to make up for any capacity shortfall. So you can be rest assured that we'll continue to do that.

Thank you, Choon Phong. Next question, please. We got one online from [ Cox Henry. ] She's asking the Boeing 777 delay was announced in October. When will we expect the first delivery? And has Boeing not informed us of the delivery time line for the SIA orders? And how will we manage any growth risk from the delay?

So individual communication that Boeing or any OEMs with us is obviously confidential. But like I said earlier, whatever Boeing tells us, we would always, as a contingency plan for something that could potentially be worse than that.

Thank you, Choon Phong. There's one more question online from Tim Bacchus from Bloomberg. We noticed that the equity accounted associates for the full service carrier are now profitable compared to the previous first half. What are the primary drivers for this? Is Vistara now profitable? Can you comment on Air India's performance for the first half?

So I think I'll touch on the Vistara question. I think, Vistara, we have fully accounted for our investment in this. So that's the reason year-on-year, you see a difference, but there have been other contributions which are better year-on-year. So putting it together this year, we see a better number. As for Air India, I don't think we can comment on it at this point. We are still not officially shareholder yet.

Thanks, Bala. Next question, please. Gentleman over there.

[ Douglas from DH. ] Could I just get a rationale behind the A350 upgrades? And yes, what's the rationale behind that? And how do you see this affecting yields?

It's as per my presentation earlier, we always look at continuous improvement in our products, and we will always want to bring what we believe to be the best to our consumers, to our customers. So that is really part of this -- the 3 brand promises, right? Product is definitely one of them. Service level, we will continue to want to improve it. And network, we too want to continue to be able to enhance it.

Thanks, Choon Phong. Yes, over there, please. Could we get the mic to... [indiscernible]. Just want to ask about the recent announcement by Changi Airport Group to raise charges at airport. Just wondering how SIA is planning to manage that and whether there are concerns about wider cost implications of airports raising their fees in other countries as well?

Thanks for the question. There are 2 parts to the increase in fees. One is on passenger levy. So that one we will collect on behalf of government and pass it through as a pass-through cost. Second is, of course, there's impact on landing, parking charges. That is obviously part of our operating costs, and that will increase our operating costs. I think the relevant thing to think about is whether it only affects SIA or it affects the whole industry. And clearly, this is something that affects the whole industry. So I guess the question is akin to what happens if fuel price goes up. I mean, the whole industry will just adjust.

Thank you, Kai Ping. We've got one question online from Sharon Chen from Bloomberg. In terms of the investments in the Air India Vistara merger, do we expect to invest further over the next couple of years?

So when we -- I believe when we first talked about Air India investment, which is to put in both merge Vistara into Air India as well as putting in sum of money to acquire 25.1% of Air India. Now as Air India expand and require more capital, there are many ways that an airline could actually get those funding. And there is the external fundraising that would include things like sales and leaseback, finance leases and all those things. So as to how Air India will be funding the expansion, that will be something that we think Air India is in a better position to respond. So you probably want to direct that to Air India itself.

Thank you, Choon Phong. Any other questions? So maybe the 2 ladies here.

Peggy from Beansprout. A question on the route mix. I noticed that your yield is down. How much of that is attributed to the change in the mix of the routes? Because on Page 17 of your announcement, East Asia actually went up for revenue contribution, but the rest of the sectors -- the rest of the regions are down. And my second question relating to that is that notice some of the points that you have flied to before, like, for instance, Xiamen where I go very frequently, you're no longer flying there. So I'm just asking whether some of these points that you have been and now you are not in there or any other places that you're seeing there is some protection measures that the country has put in place to just protect their own sector?

So obviously, the yield declined are different for the different routes. Mathematically, it's not the same number. But I would say that the yield decline is also across the board. All of our routes have seen a yield moderation in light of the increasing competition from the additional supply that's been put into the market. So I wouldn't point to any one route or region that has suffered more than most. That's the first question. The second question is on Xiamen. We are actually operating to Xiamen. So for some time, we were having flights in the system only on a rolling 2-month basis. So we have flights in the system for 2 months, and then we had approvals to add more flights. So it was a rolling 2-month basis, but that has since changed, and we have now gotten approval to be sending flights for an entire season ahead. So it's more or less back to normal. So that was the situation with Xiamen, but we are operating.

Thank you, Lik Hsin. To Mayuko, please.

This is Mayuko from Nikkei. Air India, I believe from -- in the final quarter, you will expect the financial contribution. Can I know how big the magnitude of the contribution would be? And in the mid- to long-term, what is your expectation coming from that? And if I may add, you talked about the moderation will continue -- yield moderation will continue. Do you expect it to accelerate moderating? Or do you think it will -- the worst is over?

So I'll let Lik Hsin take the yield questions. But on Air India, we have actually announced that from -- once we are officially a shareholder in Air India, then we will start to equity account for their results. As to what -- how their performance look like and projections, that really is a question that I suggest you pose it to Air India. We are not at liberty to comment on that.

On yield moderation, I think I've already answered that earlier. While we do expect yields to continue to moderate compared to the previous year, I would just point out that we are still healthily above the pre-COVID levels.

Thank you, Choon Phong and Lik Hsin. Any other questions?

Thanks. A couple actually. You're big in Southeast Asia, you are going to enter India. What are your long-term plans for China? And the second question, a number of competition airports have started free runway operations. Are there any urgency from your side to have -- for Changi to open up the third runway as soon as possible?

We, of course, want all to be operating, but Changi does have its own plan. And again, this should be a question that you address to them. On -- I think you're talking about the Southeast Asia and India. China expansion, in relation to China, so it's not just China, but when we look at our network development, we look at what opportunities there are out there, and we will continue to pursue if there are growth opportunities. China, for example, we have announced that we're going to Daxing. So that is, again -- it's a huge and important market for us. So rest assured, we will continue to pay attention to it. Just because I did mention in this later slide, it doesn't mean that we think it's not something we will continue to focus on. I mentioned Southeast Asia and India primarily because there has been development -- recent development that is, I think, significant to point out.

Thank you, Choon Phong. Any other questions? Over here, please, in the front row.

I'm from Miaomiao from Phillip. I just want to hear your thoughts on sustainable aviation fuel oil, given the fuel cost is elevating. Sustainable aviation fuel oil.

Are the cost increasing?

Yes, given the fuel cost is elevating.

We continue to -- if you look at it, in order for the industry to actually achieve net zero by 2050, SAF, S-A-F, has to be part of the solution; in fact, a major part of the solution. Technology improvement, of course. And I think we are one of the leading carrier when it comes to adopting the latest technology in order to reduce emission. Successive generation, if you compare one later generation to an earlier generation of equivalent capability planes, we are talking about maybe about 25% improvement. But SAF has to be part of the solution. The issue now is still the case whereby we don't have sufficient supply of SAF for the industry in order for us to -- a pathway for us to reach net zero by 2050. And the industry as a whole have to work together to see how we can encourage producers to continue to invest and produce SAF and to actually do so in a way that make the pricing viable as well. So that's an ongoing effort.

Thank you, Choon Phong. We've got questions online, which we can take. First, we've got Perry Yeung from UBS, who's asking, there's a notable acceleration in the year-on-year increase in nonfuel costs in the Q2 of this year versus Q1. What were the drivers behind that?

I'll take that. Perry, I think we'll have to go back 1 year in time when we were looking at the first half results last financial year. We had indicated that there were some timing differences in the staff costs and AMO, and we had suggested that we should look at the half year numbers when you fly forward and forecast for this current Q1 and Q2 of this financial year. So that's why in our presentation as well, we are focused on the first half numbers and looked at the year-on-year growth on a half yearly basis rather than the quarterly basis.

Thank you, Bala. The next question is from [indiscernible]. She's asking, why is the A350 retrofit happening only in 2026? Is it intentional to time it with the 777-9 delivery? And why are we using the same seat designs between the 2 aircraft types?

When we announced that we are going to retrofit the 350 planes with the new products, it actually means that we have been working on it for quite a number of years. I think most of you are aware of the very tedious certification process that industry require for any product that we introduce and something as fundamental as seats, it took even longer time. So it was a decision that was made years back that we want to produce -- we want to retrofit the 350 with the latest and what we believe to be the best product we can offer. As to why -- is it the same product? If we believe that those are the best business and first-class products, and they will be industry-leading when we introduce it. Then, of course, we want them for all our long-haul flights so that all our passengers, regardless of whether they are flying on the 777 later on, -9 that is, or the 350, they will enjoy the same industry-leading products. Thank you.

Thank you, Choon Phong. The next question is from Brendan Sobie from Sobie Aviation. You are still stuck at 6 daily flights to Jakarta compared to the historic 9. Do you expect any near-term improvement in this lingering regulatory situation, particularly with the enhanced Garuda partnership?

So thanks for the questions. This is the area that I said, if the -- part of our enhanced collaboration is to ensure that both parties continue to grow and continue to win from that relationship. So if the -- if it leads to an increase in the frequencies of flights between Jakarta and Singapore, you'll get to hear it and hopefully soon.

Thank you, Choon Phong. Sorry, we have a question over there.

Sorry, just a follow-up to the question on the A350 upgrades early on. I think I asked how would that impact yields? How do you foresee the upgrades impacting yields? So that's my first question. And then second one, could I just get some color on SIA halving its London route flights to once daily from February to late March next year?

Sorry, which flights again?

London.

[indiscernible] everything being equal. Of course, if you offer a better product, you can expect that demand is stronger, and therefore, we may have greater pricing capabilities. That's a general statement. As to when we introduced in 2026, what happened to year, well, we'll see.

So I believe you are referring to the increase of services to Gatwick, London Gatwick to daily. We launched our Gatwick services with 5 times a week, and they are doing very well, and that's why we're increasing the frequencies.

And so just to add, that's on top of the 4 daily flights that we have to Heathrow. So we have a total of 5 flights to London a day. Maybe the last question to Danny, please.

So you have a number of codeshares and JV partnerships, and you've increased that over the last couple of years. I think the prevailing thought would be that given they span some of your busiest operating routes and countries, how are they performing? And how do we think about it when we read about the yield decline? Should we expect stronger yields to hold up more in these particular partnerships?

So the purpose of the partnerships is really to help us extend our reach into areas that we cannot operate feasibly on our own. This would include the partnerships with Lufthansa in Germany, with Air New Zealand. And so the partnerships helps us strengthen our market position. And it doesn't necessarily -- I mean, yields are a function of demand and supply, and that is the environment at the time. Of course, like-for-like apples-for-apples, we would believe that the partnerships help support better use because of the greater market reach. But it doesn't mean that the overall market won't decline and, therefore, overall use won't decline. So you can't look at that independently.

Well, maybe just one last question online, which has just come in from [ Kimberly Amanda Chou. ] What is your outlook for the aviation industry over the next year amid the Donald Trump presidency? And are markets worried about inflationary pressures? And that will be the last question.

Well, I have actually presented the growth projections for around the world. And really, to us, the growth in Southeast Asia and the growth in India, these 2 places where we now have continued rather to build the strength in, will in my opinion at least, will continue to grow in those expectations. And again, here, we are well positioned, as in SIA Group is well positioned to be able to tap into those growth. I don't see how India's growth, for example, will be affected in any significant manner and neither do I see Southeast Asia growth to be affected in any significant manner. So we believe we are well positioned, and we will continue to strengthen this particular position as well. Thank you.

Thank you, Choon Phong. Thank you, everyone. We've come to the end of our half year media and analyst briefing. I really appreciate your questions. We will see you again in 6 months' time. Have a good day and a good week, everyone. Thank you.