7 things I learned from the 2018 Singapore Airlines AGM

When I attended the Singapore Airlines 2017 AGM the year before, the airline was in the midst of a challenging period – the group had reported a 55% drop in net profit and suffered over a billion dollars in losses in fuel hedging costs over the last two years due to the plunge in oil prices.

Things are looking better for Singapore Airlines (SIA) this year as it reported a 69.8% increase in operating profit year-on-year to S$1.06 billion, and a 147.8% increase in net profit to S$892.9 million. In July, SIA was also named the world’s best airline in Skytrax’s 2018 World Airline Awards.

SIA looks to have turned a corner, but the airline continues to face intense competition in key markets. I decided to attend the its recent annual meeting to find out how the airline intends to stay ahead of the competition in the near future.

Here are seven things I learned from the 2018 Singapore Airlines AGM:

1. SIA has spent US$850 million to upgrade and introduce new cabin products for all cabin classes – Suites, Business, Premium Economy, and Economy – on its fleet of A380 planes. CEO Goh Choon Phong said the new cabin configuration is also more revenue-efficient – allowing the A380 to place a total of 471 seats – a 15% increase from the previous configuration. SIA is also the first in the world to fly the Boeing 787-10. SIA has ordered a total of 49 planes and the 787-10 will be configured with SIA’s new regional Business Class product.

2. The CFO said that SIA would be raising additional funding to finance its expenditure on new aircraft for this year and the next. The level of capital expenditure would be higher than the group’s internally generated cash, but the investment is required for the long-term growth of the airline. Chairman Peter Seah added that it is necessary for SIA to continually refresh its fleet and cabin products because both top-quality hardware and service are needed to remain number one.

3. SIA has completed the integration of Scoot and Tigerair, and both low-cost carriers (LCCs) will now operate a single brand, Scoot. The CEO explained that for Scoot to grow, it needs to tap on passengers from the regional routes that Tigerair used to serve to grow its medium and long-haul flights. And merging both airlines would give a better integrated brand experience to customers.

4. A shareholder asked the management why they chose to retain the Scoot brand over Tigerair. The CEO explained that, based on analysis and customer surveys, Scoot has a higher penetration rate in key markets such as China, where the airline is more recognisable even than SilkAir. Scoot was also named the best low-cost carrier in Asia Pacific in 2016. Overall, customers identified better with Scoot than Tigerair.

5. SIA has announced plans to integrate SilkAir with SIA and is spending over S$100 million to refit its SilkAir fleet with SIA’s new cabin products. As pointed out in our Singapore Airlines 2017 AGM article, SilkAir (which is not a budget airline, but a full-service carrier like SIA) suffers from ambiguous positioning as SIA, which is seen as a more premium brand, also flies many of SilkAir’s regional routes. The chairman shared that the rise of LCCs in the region have also put added pressure on SilkAir and a rebranding would allow the carrier to better differentiate itself against the budget airlines.

6. SIA currently serves 139 destinations around the world including 29 points to China and 14 points to India, making the airline one of the biggest operators in both countries. SIA also owns Vistara, a domestic carrier that serves 22 points in India, and is preparing to start international flights in the second half of 2018. Vistara’s expansion would add to the group’s revenue once international flights are in the air.

7. A shareholder noted the lacklustre Q1 2018/19 results the group posted a day before the AGM (which has caused SIA’s share price to fall recently) and wanted to know the reason for the poor results. Chairman Peter Seah said that fuel prices had increased around 40% from a year ago which depressed earnings. However, SIA was spared from the full impact and has saved around S$150 million — about half the fuel price increase — due to its hedging policy. He added that the key to hedging is about finding the right balance (as evidenced by the hedging losses SIA suffered in previous years).

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Adam Wong is the editor-in-chief of The Fifth Person and author of the national bestseller Lucky Bastard! which made the Sunday Times Top 10 Bestseller's List in 2009 and Value Investing Made Easy which made the Kinokuniya Business Bestseller's List in 2013. In 2010, he appeared on U.S. national television on the morning show The Balancing Act. An avid investor himself, Adam shares his personal thoughts and opinions as he journals his investing journey online.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.