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Singapore Airlines

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by

Jin Yan Chay

on 8 November 2013

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Transcript of Singapore Airlines

Company Analysis: Singapore Airlines
Industry Analysis: Porter's Five Forces
Financial Performance

Significant Accounting Policies
Vertical Analysis
Horizontal Analysis
Financial Ratios
Business Overview
SIA prepares its financial statement according to FRS (Singapore Financial Reporting Standards). Ernst and Young, SIA's auditors, issued an unqualified opinion for FY 2013
Investments in Associates
Equity Method, goodwill neither amortised nor tested for impairment
Computer Software
At cost, straight-line depreciation over estimated life of 3-10 years
Engine Development
Once available for sale, straight-line amortisation over 20 years
Freehold Land
At cost, not depreciated
Passenger Aircraft & Engines
At cost, straight-line depreciation over 15 years to 10% residual value
Freighter Aircraft & Engines
At cost, straight-line depreciation over 15 years to 20% residual value
Freehold buildings
At cost, straight-line depreciation to nil (30 years for office, varies for others)
Major Inspection Costs
Capitalized and depreciated over 4 years
Leased Buildings
At cost, straight-line depreciation over lease period
PESTLE Analysis
Political
Ability to operate existing routes relies on governments (Australian route to US is blocked)
Discriminatory taxes (Philippines common carrier tax)

Economic
Emerging Asian markets
Strengthening SGD
Global demand still sluggish
Short term fuel prices to stabilize
Volatile fuel prices in the long-term
Social
Shifting consumer preferences (LCC)
Increased disposable income
Technological
Fuel efficiency is key
Largely out of SIA's hands (SIA Engineering focuses on repairs and maintenance)
Legal
Regulatory Changes (China's aviation regulator encourages private airlines)
Investment constraints, esp. as a government entity
Environmental
Weak
Moderate
Strong
Threat Of Potential Entry
Threat of Substitutes
Bargaining Power of Customers
Rivalry Intensity
Bargaining Power of Suppliers
SWOT Analysis
Strengths
Unique branding
Highly differentiated product
Business beginning to diversify into low-cost space
Vertical integration
Government ties
Weaknesses
Capital expenditures high even for airline industry
Unprofitable cargo subsidiary
Yield (average cents paid by one customer to fly one km) have decreased over past two years
Profitability not fully recovered from financial crisis
Opportunities
Large cash hoard (SGD 5.6b), can grow inorganically through acquistions
Scoot has room to grow
Increased disposable income in Asia-Pacific region
Threats
Singapore Airlines is the 5-star flag carrier of Singapore
"Most awarded" airline, consistently ranked at the top for both business and economy travel
Listed on the SGX, it is one of the largest airlines in the world by market capitalization (SGD ~11.5b)
102 planes with an average fleet age of 6.9 years
Rapidly changing industry landscape (LCC)
Long-term fuel costs are unpredictable
Industry-specific threats (9/11)
SIA's divisions may cannibalize revenues
Public expects SIA to be socially responsible and minimize carbon emissions
Weather and seasons affect tourism

Low cost carriers
High speed rail
Advanced communication technology
Huge capital outlays
Congestion in major airports
Government-owned airlines have advantages
Fairly saturated industry
Low cost of switching airlines
Loyalty rewards programs
Internet makes it easy to compare prices
Many full service carriers, but they tend to have their own niche markets (home country)
Price wars
Government backing
Effective duopoly of Boeing and Airbus for planes
Uncontrollable fuel costs (hedging does not always work)
Hardly any debt and interest charges
Cash-rich
Large deferred tax liability
Minimal inventory
Significant depreciation
Large deferred tax liability
Revenue fairly steady, but net income halved over 5 years
Assets and equity slightly decreased and PPE fell 15% over 5 years
Highly negative cash conversion cycle not unusual for airline
Strong liquidity and solvency ratios (lack of debt)
Profitability ratios still battered from crisis
High P/E, low P/B (Note: SIA's brand value not on its balance sheet. London-based consultancy Brand Finance estimates it at over USD 3b)
EBIT Margin has strongest influence on ROE
Interest margin not meaningful (non-operating income is significant)
Load factor above average, operationally efficient
Thank You For Your Time
CHAY Jin Yan
CHEN Bei Bei
DARMADI Caroline
WANG Jie Yi
Full transcript