FINANCIAL STATEMENT ANALYSIS

Analysis of the Annual Report of Singapore Airlines

for the Year 2020-2021

Group No:2
Rucha Bitturwar-GJ22CM001
Arun Anantharaman - GJ22CMM025
Soumya Choudhury- GJ22CM016
Leela Sai Anil Kumar -GJ22GL045
Jyothi Subramaniam-GJ22CMM057
Answer to question no. 1a:
The disclosures are useful to understand the business strategy of Singapore
Airlines in the following ways:

• In the Annual Report the three-year financial highlights are given on

the first page, which demonstrates the Company's performance in
numbers that can be compared with the past year’s data.
• The Company also discloses the important events in a timeline which
discloses the major impacts, the measures taken by the Company to
combat those risks & the initiatives taken by the Company for stability
& growth.
• The Company especially discloses the measures taken up during the
pandemic & all the disclosures enunciate the innovative ideas,
strategies, and business opportunities to deal with the pandemic and
sustain during this time.
• The transformation journey elaborates how they identified two new
priorities of health & safety and now will work along these lines to
safeguard the wellbeing of customers. The transformation journey also
elaborates on their new sources of revenue & how pandemics have
taught them that for financial stability it’s important to have a wide
range of business activities to generate revenue.
• The Company discloses the sources of funding & when & how much
money was raised by them through what sources. In 2020 they raised
$8.8 billion through the rights issue, and $6.6 billion was raised
through various sources like secured financing, bond issuances, and
sale & leaseback transactions. This ensures transparency.
• The disclosures help us understand where the Company utilizes its
funds to generate revenue and with that, we can estimate if the strategy
will be awarded revenues or not.

Answer to question no. 1b:

• The financial data in the income statement, balance sheet & cash flow
statement helps to make future predictions.
• When we consider the revenue of the past two years & with the help of
the annual growth rate over previous periods future revenue can be
assumed.
• The company can also forecast the cashflows for example when can the
Company receive payments from the clients. Based on the billing cycle’s
due dates, we can predict future cash flows.
• The amount of depreciation, what method of depreciation the Company
is using & forecasting the depreciation for next year.
• Few examples listed above illustrate how financial data in annual
reports help in forecasting.
• The disclosures related to the Company’s vision, mission, and strategies
adopted during the year explain the shifts taken by the Company with
respect to R&D, CSR, governance norms, etc., which indirectly impact
the financial performance of the Company. The management’s views &
measures adopted help in understanding the Key Performance
Indicators (KPI).
• Below is the summary of sections that are important, and which are
less important in analysing the financial statement of the Company:

Important Less Important

Overview- It discloses the past & Chairman’s letter to shareholders
present highlights of the is not so important as it
Company to get a glimpse of the elaborates the strategy & how the
overall performance of the Company has performed during
Company & how well the the year which is already listed in
Company is deploying its other sections of the annual
strategies. report briefly.
In strategy, strategy for the future Board of Directors- This section is
is important to understand what not so important as it discloses
the company has learned from the corporate governance
the failures & how are they adherence and not so specifically
playing on their strengths & revolved around profitability.
weakness.
The Section Performance is The Section Corporate
important as it illustrates the Governance is not so important
performance of all the divisions of as it is related to the transparency
business exhaustively giving a of the Company & how well the
clear picture of the divisions with Company is abiding by the laws &
numbers. regulations of the governing body.
It does not have a direct
relationship with profitability but
has an indirect impact.
Financial Information is In financial information, Notice of
important to get an Annual General Meeting,
understanding of the complete Corporate data doesn’t have a
business performance in terms of direct impact on the financial
numbers and can compare the performance of the Company.
results with the past data & This data is also found on the
interpret the future results. website & only for the information
of shareholders.
Answer to question no. 2:
Strategies adopted by Singapore airlines during the year 2020-2021 & 2021-
2022 to recover from the covid-19 loss:
• Operated cargo-only flights to set off the loss by non-operation of
passenger flights, the airlines removed the passenger seats and turned
them into cargo flights including transportation of vaccines & essential
supplies.
• Engaged communities at home-2100 staff of SIA group ambassadors to
32 organizations that were working as the Covid healthcare experts.
• Freighter fleet renewals as it will burn approximately 40% less fuel.
• Commitment to new-gen aircraft, the average group fleet age is 6 years
2 months whereas the global fleet age is 15 years 4 months around 63%
of the fleet are the new generation. The retired aircraft are recycled &
upcycled to reduce waste, recycling of the products to reduce waste,
and upcycling the parts by creating unique art pieces & retail products
to support educational institutions, artists, and persons with
disabilities.
• Discover SIA experiences:
▪ Restaurant A380@ Changi- Dining experience in the
world’s largest passenger flight.
▪ Inside Singapore Airlines- Behind-the-scenes experience
for children & adults to discover the wide range of training
facilities, simulation, and interaction with cabin crew &
pilots.
▪ SIA@home- In-flight dining experience at the comfort of
their home for the customers who missed the world-class
renowned SIA experience.
• Launched various marketing campaigns like, “We look forward to seeing
you in the air again”, offered loyalty programs, curated travel packages,
and collaboration with Garuda Indonesia airlines & Malaysia Airlines
to offer more options and enhance customer experience by offering more
destination under the same group.
• Partnership between DHL & SIA to continue to grow its cargo business
by signing a crew & maintenance agreement.
• To recover the losses incurred during the year & to adopt a conservative
approach and hence didn’t propose a final dividend for the Financial
years ended 2021 and 2022.
• Once the border restrictions were relaxed Singapore airlines ease the
quarantine regulations & pre-departure & on-arrival covid-19 tests for
fully vaccinated travellers.
• Group’s 3-year transformation Programme began in FY20/21 to
increase revenue & reduce cost by adopting the following practices:
▪ Adoption of bento boxes to eliminate single-use plastics and the
leftover waste will be converted to an alternative energy source
with the help of an eco-digester.
 ▪ In-house portal to understand real-time customer insights with
the help of machine-learning & sentiment analysis.
▪ Corporate Laboratories with co-create innovative technologies &
collaborate for operational optimization & revenue management.
▪ Cabin-crew digital ecosystem
▪ E-commerce at Kris shop, SIA Academy to expand in Singapore
& key overseas markets.
The strategies adopted by the SIA group led to the following financial
results:

• Operating loss for the FY 2021-2022 ie. $ (609.7) million was less than
the previous year 2020-2021 i.e. $ (2512.5) million by 75.7%.
• Record cargo flown & the revenue generated was $4339.4 million.
• Total Revenue generated during the year 2021-2022 was $ 7614.8
million & $3815.9 million in the year 2020-2021 which is a 99.6%
improvement.
• The Group expenditure grew 30% from the previous year 2020-2021i.e.
6328.4 million to 8224.5 million in the year 2021-2022.
• The fair value loss on fuel expenditure also decreased ie. To $(78.2)
million in the year 2021-2022 compared to FY 2020-2021 which was
$(283.3) million. The airlines were able to cope with the increase in the
prices of the fuel by way of hedging which is the biggest expense for the
airline industry. First the Covid-19 pandemic then the Ukraine-Russia
war, the crude oil prices have skyrocketed the price by 50% since the
start and the rise in prices has threatened the profitability of the airline
industry but the fuel hedging has helped Singapore airlines to provide
some relief and acquire a mark-to-market gain by hedging 40% of its
estimated fuel consumption.
Group Financial Performance

Figure 1: SIA Group Financial Performance

Answer to 3:
The toughest year in the history of the airline industry or for the overall
business sector, but the airline is one of the most impacted industries. The
revenues of Singapore airlines fell by 76.1% year on year to SGD 3.82 billion.
The group lost SGD 2.51 billion versus a gain of SGD 59 million in the
previous year.

Understanding the airline sector to gauge the performance of Singapore

airlines:
• Global Industry Size:
900

800

700
MARKET SIZE IN BILLION

600
US DOLLAR

500

400

300

200

100

0
2018 2019 2020 2021
YEAR

Source: Statista 2022

Figure 2: Market Size of the Airline Industry

Due to lockdown requirements, travel restrictions & safety health

measures the number of scheduled travellers boarded dropped by 60%
in the year 2020 as compared to 2019 and the commercial airline
industry reported a net loss of 137.7 billion U.S. dollars.

• Revenue Streams: Ticket sales is the main source of revenue whereas

the ancillary source of revenue is the sale of in-flight things, pay-per-
movie in flight, special meal packages, and added baggage charges.
 • Competitor analysis:
Gross Operating
EBIT
Company Profit Income EBITDA
Margin
Margin Margin
Cathay Pacific Airways Ltd 34.80% -1.20% (40.939)m -1.20%
Spring Airlines Co. Ltd -6.20% -1.20% (962)m -1.20%
Air China Ltd. -18.50% -27.10% (4.469)b -27.10%
ANA Holdings Inc -2.90% -17% (2.275)b -17.00%
Air France -KLM SA 19.00% 1.60% (1.121)b 1.40%
Singapore Airlines Ltd 29.20% -8.00% (2.763)b -8.00%
KLM Royal Dutch Airlines -7.00% -19.60% (2.244)b -19.60%
Source: UK.investing.com

• Gross Profit Margin: Gross Profit Margin ratio is an indicator of the

financial health of the Company higher the ratio healthier the Company
is. According to the data, the SIA stands second to Cathay Pacific Ltd.

• Operating Income Margin: Operating income margin indicates that the

Company is earning profits from its operations and indicates that it is
earning enough from its business operations to pay back the cost of
business operations. Higher the ratio better the position but because the
airline industry is also generally in loss and doesn’t earn much from the
direct operations of the Company that its ancillary sources hence this ratio
may not be a good option to consider while analyzing the health of the
Company.

• EBITDA (Avg 3 yr Capex): EBITDA is Earnings before Interest Tax

Depreciation & Amortisation which indicates the health of the Company
and its ability to generate cash. EBITDA depends on various factors and
in the airline industry the operating expenses are too high as compared to
the passenger revenue. The data presented above is of the pandemic time
when the airline industry was highly impacted.
Singapore Airlines has always positioned itself strongly in a competitive
industry and positioned the brand & commitment to innovation & customer-
centric. It has various competitive advantages in the industry:

• It has one of the youngest fleet sizes, the average age of the fleet is 6 years
2 months whereas the average global age of the fleet is 15 years 3 months.
This is one of the important aspects of low-cost carriers as the young fleet
age will reduce the maintenance & repairs cost to maintain their
profitability. In the studies, it’s revealed that the maintenance of the fleet
will increase by 60% after the 7th year having a major impact on the
operating costs of the Company. Selling the aircraft or returning the
aircraft is advised once it reaches its maturity phase to maintain
profitability & reduce the burden on operating costs.
• Around 40% of the cost in the airline industry is derived from fuel & SIA
hedged 60% of its fuel requirements in advance for two years to avoid
uncertainties & large volatility. This is also advantageous because of the
young fleet size which doesn’t consume much fuel.
• “Singapore Airlines-A great way to fly”- This creates the brand image and
they have been able to be consistent in matching their commitment & all
facets of services. To prevent cannibalization, Singapore Airlines has
ensured that the enterprise elegance enjoy remains differentiated from the
top rate economic system enjoy in phrases of seat width (34 inches as
opposed to 19.5 inches), seat reclining (fully-flat mattress as opposed to
eight inches), and enjoyment screen (15.4 inches as opposed to 13.3
inches). In addition, Singapore Airlines gives top-rate economic system
seats on non-prevent flights to Los Angeles, San Francisco, New York,
Houston, and Seattle.
• Keeping Innovation as a strategic partner has always been a competitive
advantage for the SIA. The three pillars of SIA are Products, Services, and
Networks to have an edge over others. Innovation was a priority for the
Airline since its incorporation, It was in the year 2015 when it first
launched its economy class updating its lounges over worldwide air
terminals and patching up seats in all cabin classes
to title many activities. Krislab is one of the latest innovative strategies
toward brand commitment.
Answer to question no. 4:

Revenue-Industry Vs SIA

SIA

Industry

0 100 200 300 400 500 600 700 800 900

2022 2021 2020 2019 2018 2017 2016 2015

Source: Statista.com
Figure 3: Revenue Analysis of Industry Vs SIA

According to Figure 3, the Airline Industry has always been volatile but before
the covid hit and paralyzed the industry the market trend showed stable
growth and it would have been expanded in the future as well. But when Covid
hit and it immensely impacted the industry and it was not even able to
generate revenue to cover its cost. There had been various fiscal policies
adopted by the government to aid the industry and help it recover at a faster
level than it itself could.

The SIA has also shown a steady growth according to the Industry and was
devastated by the pandemic hence we can assume that the SIA would have
done at par with the industry if the pandemic would not hit it so hard.

YoY Revenue Growth Rate

YoY Industry - YoY SIA -

150.00%
100.00%
100.00%
39.41%
50.00% 26.54%
-1.66% 6.49%
-1.97% 7.55%
6.04% 3.20%
3.16% -1.84%
-2.56%
0.00%
2015 2016 2017 2018 2019 2020
-55.49% 2021 2022 2023
-50.00% -76.25%

-100.00%

Source: Statista.com
Figure 4: YoY revenue growth rate Analysis of Industry Vs SIA
As per Figure 4, the YoY growth rate of SIA is at par with the industry growth
rate but even after the pandemic hit and the strategies adopted by them, they
were able to have 100% YoY in 2022. The 2019-20 Annual Report shows that
SIA Group was successful in the final quarter of 2019-20 ending March 31.
SIA Group recorded its first annual loss of $212 million. SIA Group recorded
a record operating loss of S$803 million in Q4, resulting in its first annual
deficit in its 48-year history (Andrew, 2020). The main factor, the global
COVID-19 pandemic, has largely reduced air travel demand, although SIA
also suffered a significant fuel cost loss of S$908 million last quarter. This is
more than eight times the company's total fuel risk losses in the previous
three quarters.

SIA Financial Performance

20

15

10

0
2015 2016 2017 2018 2019 2020 2021 2022
-5

-10

Revenue Operating Expense Net Income

Source: Investing.com
Figure 5: Graph illustrating revenue, operating expenses & net income of
SIA for 8 years
Figure 5, indicates that the revenue of the Company has grown YoY from 2015
till the year 2018-2019 but when the pandemic hit the revenue also fell and
the revenues were not sufficient to cover the operating expenses of the
Company which became difficult to generate net income in positive.
Hence it is evident from the analysis that the major reason for huge operating
loss and a massive drop of revenue by 76% is the covid-19 pandemic which
did not only have an impact on the Company as an individual but the whole
industry was submerged into the losses. According to the analysis, SIA was
growing and had a stable growth rate it would have done better with the
increasing market trend. The operating income and the profit numbers would
have been much better but the growth rate would have still being volatile.
References:
• https://uk.investing.com/pro/SGX:C6L/financials/income_statement
• https://www.statista.com/statistics/278372/revenue-of-commercial-
airlines-
worldwide/#:~:text=For%20instance%2C%20revenue%20in%20the,bil
lion%20U.S.%20dollars%20in%202019.
• https://www.investopedia.com/search?q=singapore+airlines
• https://www.reuters.com/markets/companies/SIAL.SI/key-
metrics/growth
• https://www.reuters.com/markets/companies/SIAL.SI/key-
metrics/growth
• https://www.google.com/finance/quote/C6L:SGX?sa=X&ved=2ahUK
EwiYioGhmaX5AhUCyaQKHQDACI0Q3ecFegQIFxAg