SIA Reports First Quarter Loss

The SIA Group’s performance in the first quarter of 2003-04 was badly
affected by the combined effects of the war in Iraq and the SARS crisis. The Group suffered
an operating loss of $377 million, compared to an operating profit of $244 million in the first
quarter of last year. Revenue fell 35% to $1,653 million.
Reduction in costs through suspension of recruitment, deferring discretionary
spending and reducing the number of flights helped to lower expenditure to $2,031 million,
12% down on the corresponding period last year.
There was a pre-tax loss for the Group of $391 million, compared to a profit
before tax of $271 million in the first quarter of last year. A tax credit of $86 million was
accounted for in the first quarter.
An exceptional item of $41 million was reported in the accounts for
retrenchment and early retirement costs.
The loss after tax and minority interest was $312 million, compared to a
profit after tax and minority interest of $478 million in the first quarter last year.
Since staff cost is a major expense, accounting for 23% of the Group’s total
expenditure in financial year 2002-03, efforts to reduce the wage bill were a priority.
Agreements were reached with the five SIA Group unions to take wage cuts of between 5%
and 16.5% for different categories of staff from July 2003. Management staff will take
wage reductions of between 16.5% and 20%, while Directors of the Board decided to waive
50% of their fees.
The airline’s 6,600 cabin crew started taking seven days’ no-pay leave every
two months from 1 May 2003 until the end of financial year 2003-04, while pilots will take
up to two days’ no pay leave every month from July 2003.
Also agreed upon was a formula for ex gratia payments if certain profit
thresholds are met. The lump-sum payments, which will be triggered if Group after tax
profit reaches $200 million, can go up to 115% of the cut in wages.
Overall, the retrenchment and early retirement exercises cost the Group $41
million. Annualised savings from the reduction in staff numbers, wage cut and no pay leave
are estimated to be $176 million.
Passenger carriage was 45.7% lower than for the corresponding period last
year, at 9,881.7 million passenger-kilometres. Seat capacity fell 28.6% to 17,208.2 million
seat-kilometres, which was a result of cuts in capacity to match the drop in demand.
Passenger load factor slipped 18.1 percentage points to 57.4%. Number of passengers
carried dropped 49.2% to 1.9 million.
The capacity plan for the second quarter (in terms of available-seat-kilometres)
is 12.2% lower than the level for July to September 2002, but is 28% higher
than that in April to June 2003 quarter.
With restoration of passenger services in the second quarter, more cargo
capacity will be available. Cargo load factors are expected to remain unchanged.
While it appears the worst is over, the outlook for the next quarter and the
rest of the year is still uncertain. The success of marketing promotions to rebuild traffic
would be at the expense of yields as sizeable fare discounts have to be offered, and
business travel is still relatively weak given current global economic conditions.