Singapore Airlines Ltd
SGX:C6L
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Singapore Airlines Ltd
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Good morning, everyone. Very nice to see everyone here in person. Welcome to the Singapore Airlines Group half year media and analyst briefing. My name is Siva, and I'm with the Singapore Airlines Public Affairs Department. We're very pleased to, of course, see everybody here once again. This is our usual format. We will first invite our -- sorry, Executive Vice President, Finance and Strategy, Tan Kai Ping, to bring you through the results for the half year. Following that, our CEO, Mr. Goh Choon Phong, will take us through the outlook and the strategy. We will then follow up with a Q&A session. I'll go through the logistics for that later on. So we are right on time at 10 a.m.
So without any further ado, please could I invite Kai Ping up to make his presentation. Kai Ping, please.
Good morning. Good to see everybody. Thank you for taking our way to our training center this morning for our first half financial year '22/'23 results analyst and media briefing. The SIA Group delivered a strong recovery as we exited from the COVID-19 crisis, setting 5 new records. Record half year operating profit of over $1.2 billion and for the quarter just ended, record quarterly operating profit of $678 million; record quarterly passenger load factor of 86.6%; record quarterly revenue per ASK, RASK, in excess of $0.10 per ASK; record quarterly revenue of almost $4.5 billion. This performance validates all the preparation undertaken by the group doing much stronger from the COVID-19 crisis. And not to forget, the tremendous support from our loyal customers.
On the first half results, the record operating profit of $1.234 billion was a reversal of over $1.8 billion from the operating loss in the same period last financial year. Fuel price increase of 93% year-on-year and inflationary pressures drove expenditure increase above capacity trend line. Thankfully, revenue performance was stronger. Passenger carriage jumped 11-fold year-on-year, driving the strong revenue -- passenger revenue recovery to $6 billion. Cargo segment, which delivered record performance over 2020 and 2021, still delivered a year-on-year revenue improvement of $224 million on account of stronger yields despite weaker loads. Net profit was $927 million, a reversal from net loss last year. Quarter 2 improved further on a strong quarter 1, showing -- on the strong quarter 1 showing as passenger travel demand accelerated into the summer peak. Cargo performance began to slow down from the pandemic highs. More on this later to set the context.
Quarter 2 operating profit was a record $678 million, $122 million higher quarter-on-quarter. Looking forward, forward bookings remain robust across all cabin classes into the year-end travel peak season. With these results, the company has declared an interim dividend of $0.10 per share.
Looking at capacity, capacity recovery profile, passenger capacity in quarter 2 averaged 68% of pre-COVID levels, while cargo capacity was at 86%, blended the overall capacity in CTK terms, capacity tonne-kilometer terms, for first half was 73% higher year-on-year, 11% higher quarter-on-quarter for Q2 and was at 74% of pre-COVID in quarter 2.
I'll come back to these capacity numbers as a reference for performance against revenue and against expenditure. First half, against the overall capacity increase year-on-year of 73%, revenue increased by 3x, driven by strong recovery in the passenger segment as borders reopened to quarantine-free travel in Singapore and many of our key markets. Expenditure increased by 108%, which was above the rate of capacity increase. While nonfuel expenditure was well managed below the rate of capacity increase, fuel expenditure was much higher. Net fuel was 233% -- net fuel cost was 233% higher year-on-year due to a 93% increase in fuel prices, declining the expenditure increase.
The much larger revenue improvement, however, drove a $1.9 billion improvement in the operating profit line resulting in operating profit, a record for first half at $1.234 billion, surpassing the previous high of $1.143 billion achieved in the second half of financial year '07/'08. Looking at Q2 quarter-on-quarter performance, operating performance improved $122 million to deliver a record quarterly operating profit of $678 million in quarter 2.
Above the prior high of $674.6 million achieved in Q3 of FY '07/'08, revenue was up year-on-year by 14% above the overall capacity increase of 11%. Expenditure was up by 13%, slightly above the rate of capacity increase driven by net fuel costs being higher by 12% and ex-fuel expenditure up by 14% on inflationary pressures.
Looking at revenue in a bit more detail. Quarter 1 FY '22/'23 passenger revenue surged with the opening of borders. Going into the summer travel peak, Q2 passenger revenue improved further by 24% quarter-on-quarter against 11% increase in ASK reaching $3.3 billion. Cargo revenue improved $224 million or 12% year-on-year for the first half, despite the decline in cargo loads of almost 6% due to higher yields of almost 19%. However, looking quarter-on-quarter, cargo revenue in Q2 was weaker by 9% despite a 12% increase in cargo capacity driven by increase in bellyhold capacity with increase in passenger flights.
This was due partly due to the seasonally weaker summer months for cargo, but also the effect of intensifying competition with more capacity coming into play and softening of airfreight demand as supply chain pressures eased. We are expecting weaker cargo demand for Q3 on a year-on-year basis, even though cargo revenue will remain elevated compared to pre-COVID.
Passenger revenue improved beyond the rate of capacity injection due to both stronger PLF, passenger load factors, and yield. Group passenger RASK surpassed '19/'20 levels since quarter 1 financial year '22/'23 with Q2 RASK and PLS setting new records, as I mentioned.
Cargo. CLF for cargo load factor has been sliding for several quarters now, dropping slightly below the '19/'20 financial year levels in quarter 2, but yields held up significantly above pre-COVID levels. Towards the end of Q2, there was pressure on cargo yields as cargo demand began to soften from the pandemic highs and competition intensified. We can expect pressure on the cargo segment going into the second half of the financial year.
As mentioned earlier, first half expenditure was up 108% year-on-year above the rate of capacity increase of 73%. Net fuel expenditure increase was a smaller 65% year-on-year, well within capacity increase of 73%. However, net fuel cost was higher by 233% due to a 93% increase in fuel prices.
Comparing Q2 against Q1, expenditure was up by 13%, slightly above the rate of capacity increase, driven both by net fuel costs being higher by 12%, ex-fuel expenditure up by 14% on inflationary pressures.
Focusing on some of the nonfuel expenditure items, which are off trend for first half, staff costs rose 105% year-on-year due to higher provision for profit sharing bonus with the record profits lower government grants, cessation of wage cuts undertaken during the Panama by staff, higher crew allowances due to increase in flying hours. Sales costs, landing, parking and overflying charges, handling charges increased along with the year-on-year increase in capacity. And for some cost items such as in-flight meals in tandem with a sharper increase in passenger carriage.
Looking closer at fuel cost, the $1.9 billion higher yield year-on-year came from higher uplift with the increase in capacity, contributing $708 million of the increase. 93% increase in fuel price, as I mentioned before, contributing $1.467 billion, but offset by higher hedging gains of $366 million. Stronger USD against Sing dollar made up the remaining variance.
Fuel hedging. The group has fuel hedges in place to the end of financial year 2023/'24 and also additional gains which will be recognized through P&L from earlier closeout trades up to financial year '24/'25. We are currently hedged in Brent to 40% or expected fuel consumption at USD 60 a barrel from quarter 3 financial year '22/'23 to quarter 1 financial year '23/'24. Now these are hedge positions that have been disclosed before and we're familiar with. The new positions we are hedging brands on a declining wedge profile up to 10% of expected consumption at an average of about USD 80 a barrel between quarter 2 and quarter 4 of financial year '22 -- '23/'24, sorry.
This time series plot shows the progress in the group's operating line, a clear breakthrough in quarter 1, following the relaxation of border control measures in Singapore and our key markets reaching a record half year operating profit of $1.234 billion. The swing from operating loss last financial year to operating profit this financial year was due to strong positive swing in passenger revenue and better cargo revenue, partially offset by higher net fuel costs and nonfuel expenditure items.
Breakdown of operating results for the main companies of the group. Both the airlines of the group, SIA and Scoot performed better year-on-year and quarter-on-quarter. For the full service segment, Singapore Airlines, the above order improvement in the group numbers came from the parent company, achieving a record half year operating profit of $1.3 billion in the first half and record quarterly operating profit of $684 million in Q2.
Low-cost segment, Scoot narrowed its operating loss for first half by $177 million year-on-year, driven by a rebound in passenger traffic, which drove a fivefold increase in revenue $616 million, outpacing the $439 million increase in operating expenditure. Scoot's capacity for reference -- Scoot's capacity as regard to 60% of pre-COVID level on average for Q2.
Quarter-on-quarter, Scoot turned around from an operating loss of $52 million in quarter 1 to an operating profit of $12 million in quarter 2. Engineering Company operating loss widened by $4 million as revenue growth, $99 million fell short of the increase in operating expenditure of $103 million. Higher revenue came from airframe line maintenance segment and engine and components segment. Our expenditure was largely attributable to increasing staff cost, $65 million, higher production overhead of $21 million, material cost of $15 million.
Moving on to the net result line. Group net profit for first half was $927 million, a swing of almost $1.8 billion year-on-year. Quarter 2 net profit was $557 million, $186 million or 50.2% higher quarter-on-quarter. The year-on-year improvement in the net line was mainly due to better operating results. Lesser extent, lower net finance charges, improvement in share of results of JVs and associate companies, partially offset by tax expense this year versus tax credit last year.
Just to highlight, EBITDA margin was at a healthy 27.5% for the first half; interim dividend of $0.10 per share equates to a dividend payout ratio of 32%. I'll just skip through this slide and move on to the next. We have announced the full redemption of the rights MCDs issued in 2020 at the next semiannual redemption date of 8 December 2022. It will be funded fully by existing cash reserves. Rationale really is that MCBs are currently our most expensive financing tool and any MCBs, including [ equity ], you will not redeem by maturity date will convert into ordinary shares resulting in dilution to existing shareholders.
Tables on the right show the pro forma impact on our key financial metrics from the redemption of the rights MCB 2020. So in general, equities were reduced by $3.9 billion with corresponding improvement in EPS.
So my last slide. This slide shows the mix of the group's operating fleet as at 30th December -- September 2022, and the delivery is expected through the end of financial year. So with order plus and minuses, we are expecting a net addition of 2 aircraft in the second half of the financial year. Thank you very much.
Thank you, Kai Ping. I will now patch Mr. Goh in, if you could just give us a minute, please.
Hi. Good morning, everyone. Firstly, I apologize for not being at SCC in person, I would very much have loved to be there in person. But unfortunately, I'm still recovering from COVID, so I have to stay away from all of you for the safety of our view. Let me begin my presentation this morning. The exceptional results that Kai Ping has just gone through did not happen by accident. It is something that the SIA Group has been working hard on.
Firstly, how do we -- how have we been handling the pandemic. You recall that right at the beginning, one of the first thing that we have done is to raise fund and we went up with the support of our strong support from our shareholders, particularly domestic, we were able to secure $15 billion in terms of rights issued. $15 billion because it is something -- it's a huge time, of course. It was more than our market cap then. And the reason why we went for such a big sum is because we wanted to ensure that we have enough funding to last a long time to outlast the pandemic so that our people within the organization kind have the peace of mind to focus on both handling the pandemic as well as to prepare for the eventual recovery.
You can see that subsequent to the $15 billion announcements, we have went ahead to raise other funds and at the end of -- at the beginning of this financial year, in April, last funding coming in, we have raised a total of $22.4 billion, which makes us one of the most -- is not the most cash -- with the most cash liquidity among all the airlines. But we didn't stop at fund raising. We also took proactive steps at the early on of the pandemic to manage cost, to talk to our suppliers to talk to OEMs on deferred cash payment.
So for -- as far as aircraft are concerned, aircraft engines are concerned, we deferred more than $4 billion at the early part of the pandemic. We also took on other cost management measures, including staff measures, pay cut as well as painful exercise of cutting staffs even though we have taken all possible actions to reduce that number to as small as possible.
We have also taken innovative ways of engaging our customers where nobody else, nobody -- highly anybody was acclaimed. We have also deployed our resources to take part in the frontline fight against COVID. During the pedantic, we started our second transformation exercise. And you can see some of the some of the actions, some of the measures, some of the initiatives that we have taken during that period. But it's not all because it's not just about handling the pandemic, it's also about ensuring that we're prepared for the recovery.
We want to make sure that when the recovery comes, and we knew that it will at some point, we are ready for it and we can be employees of the block to capture the demand that comes about. During the pandemic, we have seen very strong cargo demand. And we all know the reason why and we have taken priority steps to convert capacity from passengers for cargo missions. For example, we removed some of the seats on the business on the economy class on our 777 aircraft as well as the A320s to accommodate more cargo. At the same time, we were operating many passenger planes or cargo mission. Our sales and marketing team were also up there because the physical events, physical sales events were not possible out there with huge digital events in order to bring more awareness to the public of our flight as well as encouraging more of them to travel.
Of course, we continue to prepare our launch capacity. We continue to invest, and we launched the T3 launch early part of the year, as you're all aware, adding almost double the capacity so that our passengers will be able to have more space when they go to the launch. We then continue with the training of our pilots as well as cabin crew through digital means. All these measures that we have taken to prepare the organization for the recovery.
This is a line that you can see our deployment of deployment of capacity during this pandemic period, you can see that we've been stepping up capacity in some sense, ahead of demand, so that we will be prepared when the demand eventually materialize. And if you look at the deployment of our key resources, both aircraft and crew, you can see that we are always utilizing those key resources ahead of the demand at a much higher utilization level so where we were operating at 50% of capacity, 50%, 60% of pre-COVID capacity, we were already utilizing almost 100% of our key resources so that all these resources can be kept operationally ready and can be deployed at short notice whenever we see the demand search comes from.
Relative to the other Asia Pacific Airlines, we are much ahead of the capacity deployment. Those are the reasons why we're able to be first off the block whenever there is a demand, venerable models are opened and when able there are surges in pent-up. So you can see that for those reasons, we are almost always the first out there and be able to capture those early pent-up demand, resulting in the results that you have seen in this last quarter. But it's not all. We know that it is not just about handling the pandemic, not just about preparing for this immediate recovery. It's also about preparing the organization so that we can continue to succeed in the future.
And we know that the future will have its fair share of challenges, but we can see that coming out of an we have become more resilient, more innovative and more agile. But what are the challenges that we can expect? I think with the headline, all of you are aware of what they are, so I will not give that rating. But there are plenty of challenges out there. Even during this pandemic, we have been preparing and strengthening our foundation so that we can be prepared.
We continue to retrofit our planes from the biggest, which is the A380s, with all the new latest product that we can see, including the award-winning suite; two, on the former MI fleet that we have integrated back into Singapore Airlines to put on business line flat fleet on the flight. So for Singapore Airlines, we better going forward, no matter how short the sector is, if you're traveling on business class, you have a lie-flat product. We also went ahead, continue to develop our new products or the new aircraft that's coming online, in particular, the 777-9. We believe that the products that we have prepared for that plane will be industry-leading.
During the pandemic, we also went ahead to other new freighters. In fact, the A350 freighter, not inter-freighter, is an airplane that we have pushed airbus to developed, and we will be the launch customers for these planes and will participate in some of the -- to define some of the features for commercial need. We will, of course, continue to look at what else we can do for our customers, especially in the area of personalization.
On partnership, you have seen some of the new partnership that we have announced particularly Garuda and Malaysian Airlines, you can be rest assured that there are others in the work. And in due time, we'll announce them. And you are aware that we have announced the plane to have in-depth discussions about deepening commercial relationship with our partners in India.
And in fact, for Vistara, it continued to grow during this pandemic. Vistara is today operating more than 25% of its pre-COVID domestic capacity and serving 11 international points. Similarly, for the portfolio of Scoot and SIA, we're looking at greater connectivity and cross-selling between the 2 brands.
There are also other new revenue streams that we have been -- we have initiated and we've been pursuing and building. Here are some of them. I will not elaborate them because all of these have been announced in the past. Digital capabilities continue to be an important part of our foundation. Within SIA, KrisFlyer continue to tackle on internal challenge for new ideas for digital projects, and we have started a COVID lab to do some research area for revenue as well as training, and this started in -- this was launched in January of this year.
We continue to tap talents and ideas from start-ups, community from all over the world, and part of that comes through our app challenge, which has been conducted annually even during the pandemic. Sustainability and community engagement continues to be a high priority for us. Particularly in terms of sustainability, you have seen -- you've read about our initiative with the first airline to launch the SAP product. SAP is sustainable aviation fuel in Singapore. And this will look into the feasibility of deploying SAP or uplift by the airplanes by operators in Singapore going forward.
So as you can see, during this whole pandemic, we did not just talk about handling it. We did not just talk about preparing for the immediate recovery. We have also put in a lot of investment in ensuring that the organization is prepared for the future at the foundation level. And the most important part of it is clearly our people, and we continue to invest in our people so that they can reskill and upskill and be up to the challenge in the future.
With that, thank you.
Thank you, Mr. Goh. I would now go to the Q&A session. So while we do some basic setup, let's just go through some logistics. We will -- we have about half an hour or so for questions, half an hour to 40 minutes. [Operator Instructions] We do have a lot of people here. We have some people signing in virtually. So we will take some of those questions as well.
So for the Q&A session, we will have Mr. Mak Swee Wah, Executive Vice President, Operations; Mr. Lik Hsin Lee, Executive Vice President, Commercial; as well as Mr. Tan Kai Ping, Executive Vice President, Finance and Strategy, joining us on stage; and Mr. Goh will be joining us virtually. Gentlemen, please.
Okay. So why don't we just get started. Yes, this gentleman right in here in the blue shirt, please. Thank you.
My name is Raymond from CGS-CIMB. So my first question is about your plans to sell Vistara to Air India. And whether that will involve any additional equity into the combined business? And another question on dividend payout policy. If you have any?
Sorry, Siva, maybe you would like to repeat because it came across muffled. I couldn't really get the questions.
Sure. If you could get the second question, please.
Yes. Okay. So the first question is about the sale of Vistara to Air India. And if there are any plans to inject additional equity into the combined business? And the second question is about the dividend payout policy. If you have any?
Okay. So the first question is on Vistara, if there would be any additional equity into the combined venture, and the second one is dividend policy.
I see. Okay. So the Vistara, it is as per what we announced before on, I think, 13th of October. We are looking at deepening commercial relationship, and it could involve integrating Vistara and Air India. So these are still under discussion. We will -- when there is anything concrete to be announced, we'll announce it. On the dividend, we do not give a stated dividend policy. But as you can see, that when it is appropriate to do so, the Board will actually look at how to resume the dividend payment. In this case, we have resumed it following the half yearly results.
Next question, please. We'll have a gentleman beside him, actually.
Louis from Credit Suisse. Can I have 2 quick questions. So please. Just first, in terms of the CapEx, any updates on the CapEx plans? Since in the first half, it seems to be quite, quite moderate and down year-on-year to about $916 million. Second is in terms of the passenger capacity. I noted in your CEO's chart that in the third quarter to fourth quarter, it seems that the passenger capacity is expected to be flat at about 75%. If you can give us some guidance on that?
Sure. So if I could repeat that, Mr. Goh. [indiscernible].
Maybe repeat, I can hear this one quite clearly. So I think you please take the first question and Lik Hsin may be the second one. Thank you.
Okay. CapEx guidance has not changed since May '22. We gave the last CapEx guidance then. You will see in that CapEx guidance, run rate of around $4 billion up to FY '25/'26, $3.2 billion, then tapers off after that. Now there is a delay in the 777-9 program. I think that's public information. So discussions are still ongoing with Boeing. You can expect as a result the CapEx to move to the right to further out. So in line with the delay in the 777-9 delivery, but we don't have that guidance yet. We will put that out once we conclude the discussions with Boeing.
On the capacity question, the number that you see is an average number across the period. We are increasing our capacity during that period. So in fact, by December of this year, we would have gone up to 80% in that month alone. So it's actually an increasing trend. But reflecting an average that includes the earlier months of lower capacity.
Maybe Chandran there, please?
[indiscernible]. Two quick questions. First question is how much has sustainable aviation and fuel contributed to your Q2 fuel cost? And the second question is on the ASEAN EU open skies. What kind of competition do you foresee? And how are you responding to it?
Thanks. I will -- this is -- I mentioned that this is a pattern that we are doing, together with CAS and also to -- with Temasek. But the volume -- because it's a pilot really to test up the -- how to effectively deploy SAP in Singapore. So the uplift is really still quite small. So it doesn't have any material impact to our fuel costs at this moment.
The Euro ASEAN SA, it does provide both flexibility between Singapore and Europe and beyond Europe. I think 14x beyond Europe. We are looking at what -- whether or not -- what impact it has in terms of network opportunity for us. But we welcome their opening because it does provide us with more flexibility for deployment going forward. Thank you.
Thank you, Mr. Goh. Maybe Greg Waldron, right behind you.
I'm Greg Waldron from FlightGlobal. In the results, I noticed that you've been adding a number of destinations in China, readding Chinese capacity. And I wanted to ask you guys, how is that -- how are those Chinese flights performing? And also, do you feel it might be a bit premature given that zero COVID seems to be lingering a lot longer than people might have hoped?
China capacity. Maybe Lik Hsin, you can take that.
The Chinese capacity is fairly -- highly regulated by the governments. And we have recently been allowed to expand our capacity. But just by a little bit, we are still a far cry from where we were pre-COVID. On the whole, all our China flights are performing very well in -- because of this very constrained supply situation that is facing the whole industry, not just ourselves, for flights into China. We don't comment on the expectation around zero COVID. We obviously would just wait and see what happens. Thanks.
Thank you. Maybe we'll just go to this gentleman here and then the 2 people at the last row here, please. Thank you.
This is Jason from DBS Bank. So 2 quick questions from me. So I'm just wondering how are booking windows looking like today? Do you have any visibility beyond the year-end holiday travel season? And second question is, are there any changes to the group's fleet planning, given that SIA seems to be relying a bit more on leasing now compared to before?
I will take the second question. Maybe Lik Hsin, you can do the first one. So well, obviously, we -- COVID is unprecedented challenge and event for the industry as a whole. So obviously, we have relooked at our fleet plan, particularly on the requirement or the exact fleet that is needed in the future and also the delivery schedule. And you can also see that we have made those changes we have announced quite a few of them, including some of the conversions of fleets. So we'll continue to be -- to build into our fleet plan flexibility that will allow us to have some ability to vary the fleet plan along the way.
On booking windows from CEO's presentation, you would have seen that we are still seeing very strong demand for this year-end and leading up to the Chinese New Year next year. Beyond that, it's still a little early. But we are taking a conservative approach to try and obtain some early bookings to form our base loads. And actually, the response to those promotions for the early bookings have actually been quite good. So -- but as CEO also mentioned, there are a lot of potential economic headwinds. So it's really too early to tell at this time. Thanks.
Kai Ping, would you like to add on the fleet?
Yes. Jason, I'll just address the specific question on leases. Yes, we did look at leases as a source of financing during COVID. We just completed a couple of more leases for quite close to the end of the first half, you see in our disclosures. Clearly, with the cash that we have, we don't need it for -- as a source of funds. Our sale leaseback strategy is, first and foremost, a risk management exercise. So we continue that even in the first half of this financial year, not so much because we need the cash because we continue to balance the risk, particularly residual values of our fleet, yes.
We'll go to the lady right at the back row and then after that the gentleman beside her.
I'm Selina from Bloomberg News. Two questions. First question is about any kind of aircraft deliveries time line. Do you see a kind of shortage or any kind of delays due to supply chain constraints and crunches, both in terms of auto parts but also in terms of lag chips?
The second question is about pilots. So does SIA see any kind of hiring difficulties? How easy or difficult is it to get any pilots? And will there be a shortage of pilots in the coming year, especially in terms of considering new kinds of trials like single pilots?
So Swee Wah will answer the question on pilots. But on aircraft delivery, because of -- well, some of the delays are well known. For example, we are expecting a delay in our 777-9 delivery. And you know the reason, Boeing has come up and explained it. So we are expecting some of these delays, but we do have flexibility within our own fleet. For example, we have the flexibility of extending or keeping our 777-300 ER for a longer period, just to tie through the capacity requirement. So yes, there has been delays to aircraft delivery due to some of these issues that the manufacturers had, but we do have some flexibility within our fleet. Mak?
Yes, on pilots, if you recall, we have kept most -- in fact, almost all our pilots over the COVID period. So as we ramped up, we have the resources to do so. And we continue to have enough pilots to see us through for our growth going into next year.
But given the long lead time for pilot training, we are, in fact, now resuming both hiring of cadets to prepare them for the next few years as well as also going to hire some direct entry pilots as well to meet our needs that we foresee in the coming year or 2. Single pilot is still far, far, far away. So I think -- for now, I think we should be able to get the pilots we won.
Thank you, Mr. Mak. That gentleman right.
I'm Marcus from Channel NewsAsia. I just want to ask another question on recruitment. So you mentioned about the high demand leading into Lunar New Year. So does SIA and/or Scoot plan to recruit any more people to cover this increase in demand like cabin crew?
So we have announced -- in fact, in my presentation, I have actually also pointed it out, which is both or actually both Scoot and SIA going on track to recruit 3,000 crews by the end of the financial year. So the Lunar New Year demand is actually factored into this recruitment exercise as well. So we are catered for. And that's what Mak mentioned earlier, as far as pilots are concerned, we believe that we do have enough resources to also cater for that big demand. Thank you.
Thank you. Sorry, we've got a few hands here. So maybe this gentleman here in the red tie, followed by the lady in the orange jacket, please.
It's [ Tim Backus ] from Bloomberg Intelligence, and it's good to see you again, Mr. Goh. It's been a long time. A question relates to -- on the yield side, both passenger and cargo. So one of the striking things about the results, obviously, is that you're at record revenues, and yet you're only utilizing not even potentially 70% of the capacity. So the tie-in between record yields and lower capacity, that's obviously -- there's a lot of demand for travel post-COVID and there's not as many seats in the marketplace. So I'm just wondering what the management thinks about that relationship. And as you get back up to 100%, where you see the yields going?
And I guess, similarly, on the cargo side, although perhaps given that we may be past the peak, if you will, given the macroeconomic trends, how you see cargo yields going forward? What you're actually seeing maybe into the -- your fiscal fourth quarter after the peak shipping is over -- peak shipping season is over?
Thank you. Lik Hsin, over to you both cargo and passenger. So Lik Hsin, please.
Yes. Okay. So in relation to your question about passenger capacity versus yields and the apparent disconnect, yields being so high and yet capacity is still being low is actually because of certain structural reasons. The key one being China, where we are not allowed to put back capacity because of regulatory reasons. That's one very clear geographic region. And there are others like that as well, where we may not be able to add as many flights as we want. So that's -- hopefully, that answers the question about that disconnect.
As we move into next year, more and more airlines will be able to put back capacity. And so we would not expect yields to stay at the same elevated levels that they were at for 2022. We do believe that there will be some moderation from that level. And then as mentioned before, depending on what the economic situation is and how that affects demand, all that plays into the outcome.
On cargo, we -- you talked about beyond the peak, but I think there's already enough media reports about even the peak itself. Certainly, for the October to December period this year, we are already seeing some moderation in the rates compared to the previous year. But still much elevated from pre-COVID, just don't compare it against 2021. And then beyond that, I think it's anybody's guess right now. So we -- again, depending on some of the economic uncertainties that we face, we'll have to wait and see how the rates pan out over 2023.
Thank you, Lik Hsin. The lady in the orange shirt, please.
So maybe I'll just add here that, of course, beyond the -- we did say that beyond in our press release, beyond the Chinese New Year period, we do expect that the other macro economical -- macroeconomic impact on demand could come in and you see that there could be moderation -- that there will be moderation in terms of ticket prices. But as you know, ticket prices is a function of demand and supply. But at the same time, I would also like to share that we have always been very competitive in the way we price versus competitors on the same route.
Thank you, Mr. Goh. Please?
It's Evian from OCBC Credit Research. So I have 2 questions, if I may. The first one is in terms of your sustainable aviation fuel. I think some of your regional peers have been announcing SAF plans as well. So just curious if SIA will look to set out some hot targets surrounding percentage usage and, say, which year type of lens?
And the second question is perhaps for Kai Ping. Is the company looking at certain sign poles where if you meet maybe certain equity targets, then SIA will be looking at the redemption of the $6.2 billion that the MCBs?
So for SAF, I mentioned that there's a pilot that we have more than back on. And we are actually taking this full thing about sustainability as high priority items, not just for management, but for our Board as well. So you can be rest assured that we are looking at very -- in a very comprehensive manner at what -- how do we mix out the sustainability target that we have actually announced, which is by 2050, we want to achieve net zero.
And I would like to also reemphasize the point that we have made before. The most immediate and effective way to reduce carbon footprint by any airlines is really to use new technology planes because from our experience, switching between the older technology to newer technology planes, it ratably reduced uncovered emission by 25%. But of course, we're not able to stop here. There are various initiatives to look into, and we will announce them aggressively. Kai Ping?
MCB 2021. So MCB 2021 has the same features as MCB 2020. So all the arguments or reasons for redeeming MCB 2020 that I explained in my presentation just now will be through. I would just point out that they remain very flexible. They are equity on our balance sheet. There are a lot of uncertainties still moving forward with the macro environment. Also a lot of opportunities moving forward with the macro environment. So we're taking this step by step. No decision has been made at this point on MCB 2021. We'll take it step by step. We have announced MCB 2020 redemption. So we will -- and if there's decision on MCB 2021, we will make the appropriate announcements.
Mayuko. And then we'll take some questions online.
This is Mayuko from Nikkei. This is a question to Mr. Goh. Back to Air India discussion with Tata, can you share with us, again, just about your view on the market in India competition situation? And based on your experience of running Vistara for several years by now, what do you want from India? What do you want to do there? And what's the minimum that you are aiming to get from the discussion in terms of the stakes, representation and operation and stuff? And can you share with us about your multi -- sorry, yes. multi-hub strategy. You have lost NokScoot during COVID. So do you still want this? Do you still pursue? What's the next that you want to do?
Let me start with multi-hub. The reason why we have looked at our multi-hub strategy is because the best that Singapore really is a small market, 5 billion, 6 billion people. We don't have a hinterland of domestic network like many other big countries have. So there is a limitation to grow just based on the Singapore market. Of course, we are mitigating some of that through all kinds of partnerships, as you can see, which have brought about extension of our network to many other parts of the world through e-mail, domestic points in many parts of the world, which has been effective and will continue to pursue.
But our multi-hub strategy, it's really to enable us to dissipate directly in the growth of that particular region or country in a way that we cannot -- if we are just based in Singapore. So in the case of Vistara, for example, Vistara is able to fly domestically. In fact, it currently is the second biggest airlines for domestic market share. And that is saying a lot given that Vistara has been around only for less than 10 years. And also that it is operating to 11 international points from India.
Now Singapore Airlines will never be able to operate from India to domestic India nor to so many international points from India. So we also look at it from a perspective of how we can complement the Singapore hub with the synergies between the 2 countries. So therefore, that's the reason why we have invested in Vistara. Vistara has done well. It is widely now recognized as the second -- as the best airline, best food service carrier in India.
And as I said, NokScoot is now having second highest market share in domestic India. So yes, we have had some ventures overseas before, but NokScoot being one of them as far as they came to COVID. But that doesn't mean that we should not look at other opportunities if and when they present themselves and it makes sense for us to look at in terms of growth potential as well as the synergy with the Singapore hub. So we will keep our options open and if the opportunities we'll certainly evaluate them. Thank you.
Thank you, Mr. Goh. We'll just take some questions that have come in virtually right now. The first question, which Mr. Goh you might have already answered is if Vistara do integrate Air India, what could you ensure that you retain your market foothold in the India market? Is there anything you wish to add on that?
All discussions regarding Vistara and whether or not you will be integrated with Air India and so forth, obviously, confidential discussions that we are having with the Tata with our partners, Tata Sons, and we will make the appropriate announcement when the time comes.
Thank you. The next question is current passenger yield is around 25% to 27% above pre-COVID. Can you help to break down the organic yield increase versus the shift in mix towards premium cabins? That's the first question. And the second question is, can you provide a guidance on yield before the -- beyond the Lunar New Year?
Lik Hsin, please.
Yes. If you look at our load factors, we are actually experiencing good load factors across all cabins. So it's not so much a shift between cabins. It's actually across the board. FS have been elevated for 2022, basically in all cabin classes. But as CEO mentioned, we obviously try to be competitive to make sure that customers can see fair FA, that's the right way to phrase it, against every other airline out there. So that's the second part.
The second question, can you provide yield guidance before beyond Lunar Year?
Well, we don't provide yield guidance. But as I said, 2022 is a very unique year, and because of the lack of supply and the pent-up demand, so in general, we have already made statements around where we expect 2023 to go in respect of passenger use. Thanks.
Thank you. We'll take a question from [ Pega ] then followed by the lady here.
I'd like to find out the rationale for the hedging strategy of up to 10% on a declining wedge profile. Because SIA has always adopted a new proposition, right? So how does that square off? And also how -- what is the impact of rising interest rates and strengthening U.S. dollar on SIA?
Maybe I'll take the second question. It is really rising interest rates in U.S. dollars as part of the macroeconomic impact that we mentioned earlier. Obviously, the question is how much would it impact demand for goods and also demand by our passengers for travel. And that's not something that is clear at the moment because as many economies have pointed out, this time around with inflation and potential recessions, it is happening when we are seeing very strong employment in all major -- most major economies.
So we don't know exactly what the impact will be in terms of passenger demand or travel, but we will -- as you can see from my presentation earlier, we're a lot more nimble and resilient following COVID, a lot more innovative as well. So we'll remain nimble and flexible to -- and respond accordingly if there's a need to the changes in the marketplace. Kai Ping?
Yes, CEO. I'll just add one piece of information, I think what [ Pega ] is looking for on U.S. dollar exchange rate. I'll just maybe point out that we did 2 USD bond issuance and the funds remain in U.S. dollars.
The reason is because those funds were raised -- earmarked for CapEx. And so we do have -- we are long at this point in time on U.S. dollar. So the increase in exchange rate versus Sing dollar does not really affect us at this point in time as far as CapEx is concerned. Yes.
Now hedging, it is not a strategy that we are at 10% declining wedge for the period beyond quarter 2 FY '23/'24 to quarter 4 FY '23/'24. It's just a report of where the hedging positions are right now. I think I was providing this disclosure because we have suspended our hedging program for some time. And this is really just signaling that we have resumed, and this is where the positions are at this point in time. Yes.
Lady here, please, in the third row.
[indiscernible] from OCBC. Maybe on your project capacity level for passenger and cargo for end of Q3 and also Q4. Then second question is on the recovery of business travel. May I know the demand so far?
Lik Hsin, can you take these questions?
So the capacity, I already mentioned, we will be at about 80% for December '22. And that's largely where we will be at as well for March '23. Most of the growth will take place between now and December, and then it will be stable until March of 2023.
The second question was around business travel. Business travel. Okay. So business travel recovery has come back nicely in the second quarter. I think in the first quarter, it was lagging behind the general travel recovery. But since around June, July time frame, we have seen really the corporates going back on the road again. Thanks.
Yes. Maybe I'll just bridge that answer we -- what we put out in the guidance, we put out in our press release. We see a different number for the average for Q3 and Q4 guide of 76%. Lik Hsin just mentioned, 80%. We will get -- we are expecting to get to 80% by December, but there are monthly variations to do with -- after the big travel surge, typically, we do have some reduction in flight program in a normal year anyway. So there are monthly variations that result in that 76% average number, but we will get to 80% by December and March as Lik Hsin mentioned. Yes.
Thank you. Maybe just that gentleman there, and then we'll come back to you.
This is [ Shawn ] from JPMorgan. So a couple of questions here. So one thing we talk about is 80% of capacity by year-end. Just wanted to ask if China reopens, how confident are we to reinstate capacity back to 100%, let's say, next year? Is there any capacity bottlenecks that we actually see on that?
And second question is on normalized passenger and cargo yields. Do you like to provide some guidance on where do you think cargo and passenger yields could finish in a post-COVID environment?
So the question came across muffled, so I missed most of them, but I think it is about -- something about passenger and cargo demand and yield a lot or something.
It's really a question on when we will get to...
Lik Hsin, are you able to hear those questions?
Yes. Yes, I can answer the questions, if that's okay.
Okay, please go ahead. Yes, please.
So as we mentioned, we kept most of our resources. And so if China does open up in the very near term between now and March, we do have capability to scale up further. And of course, ultimately, we also have the ability to be nimble as our CEO has mentioned, to switch around our network to make sure that we are able to take advantage of the China opening as and when it comes.
In our plan right now, it doesn't -- there's no material increase of our China flights between now and March, but who knows, I guess, and -- but we do have the capability to put back the flights if we are allowed.
The second point, no, we don't give guidance on passenger and cargo yield. So I wouldn't be able to give you what our expectation of a normalized level is. Thanks.
Probably got time for maybe 1, 2 more questions. We'll go to Brendan first, if you don't mind.
Brendan Sobie with Sobie Aviation. I had 2 questions. First is I was curious about your strategy going forward, Scoot versus Singapore Airlines, the parent airline. The capacity at Scoot has come back really much faster in the last few months. Is -- from a seat perspective, is that almost 90% now. So even though you have that ASK 80% figure, there's actually faster LCC recovery. And I was just wondering if this is permanent and how much you see this going forward because there has been a shift in routes from SilkAir to Scoot and even some new routes like that Scoot has launched or routes that on the SQ used to operate like nonstop to Tokyo and sold those kind of routes.
And the second one was Indonesia. I was wondering if you had any color on when particularly Jakarta would come back. Jakarta was your largest route pre-COVID an extremely important route, but it's still even with the increase of one additional flight with the winter schedule, you're still only 5 of the 9 you had. And I was just wondering what kind of impact that has had and when you might see that coming back.
So Brendan, you can be rest assured that we would like to work on putting back more Jakarta capacities. So we are working with relevant agencies and authorities to try to see how we can bring that up, but something that clearly we are working hard on.
On Scoot, maybe I'll ask Leslie in the audience to take that question.
All right. Good afternoon, I think for Scoot, if you look at the capacity increase that we had in the last couple of months, it is steeper because we have actually just been opened up and scale up quite aggressively since April when the Southeast Asia region opened up. And going forward, we are planning to reinstate or launch some of the formal SilkAir points in Indonesia. For example, pre-COVID, Scoot only had 5 points in Indonesia. Now we have 8 points because we have launched some of the formal SilkAir destinations. In the coming months, we are planning to add another 3 more points. So that will bring Scoot network in Indonesia to 11 points. That sort of densify and solidify Scoot network in Southeast Asia.
Thank you, Leslie. We're running out of time, so probably last word to Tim.
The question, I think, is for Kai Ping. In your presentation on fuel hedging, there was a table, which I'm not familiar with. So I just wanted you to maybe elaborate on what I was looking at. And it was called something like gains on closed trades. So just a question on that.
Yes, I explained this in previous presentation. So I think you've just come back to cover Singapore Airlines. So I'll cover this again. During COVID, if you recall, we had a very low flight program. And so we found ourselves in an overhedged position. So those were hedges taken pre-COVID -- on a pre-COVID capacity forecast. And during the depths of -- we found ourselves in a 3%, 4% range of pre-COVID capacity. So we are all hedged positioned.
In '21, we took some measures to close off some of these overhedge positions because they were causing big volatility in the balance sheet and in the P&L. And so we took sales swaps to match the buy swaps so that they were closed out, but those trades only mature at the point in time when those sales source and buy source only mature at the dates that the original positions mature. I don't know whether I'm explaining it clearly.
So the P&L -- the impact on P&L is already fixed, but we cannot recognize it until the buy source and sales source mature, yes. So in the second half of '22/'23, we are expecting another USD 34 million to flow through the P&L. It's already done, it will flow through. And FY '23/'24 to '24/'25, we're expecting USD 110 million to flow through gains, yes.
Great. Thank you. We've had about 45 minutes. So thank you, everyone, for your time. Thank you, panelist. Stay safe, everyone. And we'll see you for the full year meeting and analyst briefing. Have a good day. Thank you.
Thank you, everyone.