SIA's Scoot losses

[Powerpoke]

They have discounted flights every tuesday. how not to make a loss?
IMO too much competition in budget sector and sg budgets have too high cost base.

Looks like Scoot is already making fairly heavy losses and will affect SIA's financial situation as its owned 100% by SIA.

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Mayday: Scoots $65 million loss shows its losing this budget dog-fight

It's only a matter of time until SIA has to ease the throttle.

You don't need radar tracking to see Scoots $60mn losses are unsustainable for SIA. In Maybank Kim Eng's estimates, Scoots posted a full-year loss of around SGD65m, dampening SIA's profitability. Maybank noted that Singapore Airlines (SIA) reported 4QFY3/14 net profit of SGD27m, in line with our expectations. The boost came from exceptional gains of SGD19.8m and recognition of tax credits that led to a positive tax charge, but this was offset by losses from associates. Group operating loss of SGD60m in the quarter was a miss (4QFY3/13: SGD44m) with Scoot likely in the red.
- See more at: http://sbr.com.sg/aviation/news/mayd....CfIf6DiP.dpuf

[flyguy]

And not forgetting about Tiger air losses which SIA now owns 40% of it.

From financial news :

"Tiger Airways shares slump on widening losses
Shares in Singapore-based budget carrier Tiger Airways slumped by as much as 8%, to a one-month low, after it posted widening losses.

The firm saw its losses rise to $96m Singapore dollars ($76m; £45m) in the January-to-March quarter, from S$15m during the same period a year earlier.

It also issued a bleak outlook and said it plans to review its Indonesian joint venture Tigerair Mandala.

The firm has been struggling to compete in an increasingly crowded market.

"Due to an industry over-supply of capacity, Tigerair continues to operate in a challenging business environment," Tiger said in a statement.

"It is expected that yield and load factors will remain under pressure."

Tiger is partly-owned by Singapore Airlines and has lost about a quarter of its market value this year. Its shares fell to 40 Singapore cents on Monday.........."

[flyguy]

And Tiger losses of $96m is only for one quarter! - Jan to Mar 2014.

[Powerpoke]

Losses

At the rate it goes, SIA will have to write down investments in both subsidiaries eventually

[259850]

And Tiger losses of $96m is only for one quarter! - Jan to Mar 2014.

That's a bit misleading. They took huge write-downs on investments in associates and leases (they are furloughing some planes next year, so taking the write-down now). All companies do that - when times are bad, just take all future losses now, so that things look a lot better in the future, even if in reality they are not.

That doesn't mean they're ok....they are running operating losses as a result of expanding too quickly. All the LCCs in this region have expanded too quickly, resulting in huge overcapacities that will take 1-2 years to ease (if they don't keep on buying more planes).

We, the consumers are the beneficiaries. I don't own Tiger shares, so I'm happy.

[259850]

At the rate it goes, SIA will have to write down investments in both subsidiaries eventually

Write-downs are just accounting entries - no impact on cash. Write-down on investments in subsidiaries doesn't have any impact on the consolidated entity. So SQ's consolidated accounts will not be impacted by write-downs of its investment in Scoot (but it may choose to write-down the value of Scoot's assets, which will have an accounting impact). Any write-downs in investment in Tiger will affect accounting profits.

But remember....this is all accounting entry no real cash impact. Think about the Virgin Atlantic investment years ago. They wrote it down much before they sold the stake to DL. So when they sold the stake to DL, they actually recorded a profit.......Write-downs etc, are used by CFOs to smooth reported earnings. Good analysts always know how to not fall for them.

[flyguy]

Am sure they will be actual cash losses impact and not just simply paper write-offs. When planes are sitting idle at the tarmac as a result of overcapacity, there's still actual payment for leases and it runs into millions as even a A320 will costs Tiger at least $500k per mth for lease/financing. Hence for Tiger, writing off losses and grounding planes and cancelling plane orders do have a actual cash element to it.
Similiarly Scoot's losses due to operational reasons and capacity for its 1st financial year does too have a actual financial bearing as SIA needs to inject money into it.

[kevin-sg]

SIA just this weekend invested another SGD400 million in Scoot. ...omg...

[FN-GM]

SIA just this weekend invested another SGD400 million in Scoot. ...omg...

Maybe you should be CEO if you know what your doing?

[259850]

Am sure they will be actual cash losses impact and not just simply paper write-offs. When planes are sitting idle at the tarmac as a result of overcapacity, there's still actual payment for leases and it runs into millions as even a A320 will costs Tiger at least $500k per mth for lease/financing. Hence for Tiger, writing off losses and grounding planes and cancelling plane orders do have a actual cash element to it.
Similiarly Scoot's losses due to operational reasons and capacity for its 1st financial year does too have a actual financial bearing as SIA needs to inject money into it.

I don't disagree. What I have a problem with is that these write-offs can alter the financial results to the point that they don't reflect the reality of cash flows. The Tiger planes sitting idle is a case in point. They took a huge write-off in March 14 for the planes sitting idle in the future in April 14 - March 15. The logic is this: things are already bad, so might as well take all future losses now and the markets can't punish us even more than they do now. Then for the next fiscal year, we'll show profits even though we have planes sitting idle and are actually paying for their leases. And if the markets recover, and we fly some of the planes, we can record a gain by reversing some of the previous write-offs.

[Kyo]

SIA just this weekend invested another SGD400 million in Scoot. ...omg...

I'd rather they burn money on Scoot, which still has much to prove, rather than dump it in Tiger, which is basically a proven mistake, time and again.

[Sethor]

They will burn more money with NokScoot when that JV starts up later this year, 3x 777-200ERs doing mid-long haul routes ex DMK.

[kevin-sg]

Maybe you should be CEO if you know what your doing?

If I am the CEO I would not even think of starting another airline subsidiary until Tiger turns in a profit. They could have expanded Tiger to cover NRT and ICN plus the other Chinese using their A320 aircrafts. These would be easier to fill. Scoot has been randomly cancelling their flights, I presume due to poor loads trying to fill 400 seats daily to certain destinations.

[scooby5]

I wouldn't like to fly from SIN to ICN in an A320. To HKG is long enough on Jet* without then doubling it up.

Tiger itself is where the problem lies. There is far too much competition regionally on the shorter to medium haul legs and trying to enter a market already trumped by AirAsia and Jet* was always a tough ask when their service was not even a match.

[flyguy]

SIA have no choice but to further invest and put in another $400 million into Scoot and particularly when its new 787s are due beginning in dec and it will have all 20 787s in 2 years time - which is a lot of planes and Scoot need to ramp up its destinations like very very fast. Believed its too ambitious at this time as partly bec SIA ordered but changed its mind on the 20 787s and hence pushed it to Scoot - and 20 787s is a lot of planes for a regional LCC. Looking at another LCC nearby for example like Air Asia X, it tool them about 7 years to build up a fleet of 16 A330s and have been successful and mostly profitable since it began from 3 years onwards.
And believed that Scoot will also take away some leisure travellers from its parent SIA. This will cannibalised some of SIA's leisure market. I know of 9 friends and colleagues who have taken Scoot to Sydney which otherwise they said they would have taken SIA if not for Scoot. And with Scoot expansion which they need in order to try and deploy its planes, its no doubt that Scoot will fly to more destinations that its parent SIA are flying to.