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, of course, to see everybody here once again. This is our usual format. We will first invite our 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. We are right on time at 10:00 A.M. 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 making your way to our training center this morning for our first half financial year 2022/2023 results analyst and media briefing. The SIA Group delivered a strong recovery as we exited from the COVID-19 crisis, setting five new records. Record half-year operating profit of over $ 1.2 billion. 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 to emerge 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 two i mproved further on a strong quarter one 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 two operating profit was a record $ 678 million, $ 122 million higher quarter-on-quarter. Looking 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 recovery profile, passenger capacity in quarter two averaged 68% of pre-COVID levels, while cargo capacity was at 86%. Blended the overall capacity in CTK terms, capacity ton 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 two. 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 non-fuel 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 93% increase in fuel prices, headlining 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 2007/2008. Looking at Q2 quarter-on-quarter performance, operating performance improved $ 122 million to deliver a record quarterly operating profit of $ 678 million in quarter two, above the prior high of $ 674.6 million achieved in Q3 of FY 2007/2008.
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 other expenditure up by 14% on inflationary pressures. Looking at revenue in a bit more detail, quarter one FY 2022/2023 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 declining 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 belly hold capacity with an increase in passenger flights. This was due partly to the seasonally weaker summer months for cargo, but also the effect of intensifying competition with more capacity coming into play and softening of overall 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 2019/2020 levels since Q1 financial year 2022/2023, with Q2 RASK and PLF setting new records, as I mentioned. Cargo.
CLF or cargo load factor has been sliding for several quarters now, dropping slightly below the 2019/2020 financial year levels in quarter two, but yield held up significantly above pre-COVID levels. Towards the end of Q2, there was pressure on cargo yield 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 non-fuel 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 pandemic 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 costs.
The $1.9 billion higher fuel bill year-on-year came from higher uplift with an 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 gain 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 2023/2024, and also additional gains, which will be recognized through P&L from earlier close out trades up to financial year 2024/2025. We are currently hedged in Brent to 40% our expected fuel consumption at $60 a barrel from quarter three financial year 2022/2023 to quarter one financial year 2023/2024.
Now these are hedge positions that have been disclosed before and you're familiar with. The new positions, we are hedged in Brent on a declining wedge profile up to 10% of expected consumption at an average of about $80 a barrel between quarter two and quarter four of financial year 2023/2024. This time series plot shows the progress in the group's operating line. A clear breakthrough in quarter one 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 non-fuel 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 bulk of the 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 has recovered 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 one to an operating profit of $ 12 million in quarter two. 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 component segment. Higher expenditure was largely attributable to increase in staff costs, $65 million, higher production overheads, $21 million, material costs, $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 two 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. Less expense, 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 2020 MCBs issued in 2020 at the next semi-annual 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 any that 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 MCBs 2020. In general, liabilities were reduced by $ 3.9 billion, with corresponding improvement in EPS. It's my last slide. This slide shows the mix of the group's operating fleet as at 30 September 2022, and the delivery is expected through the end of financial year. With all the plus and minuses, we are expecting a net addition of two 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 would like to apologize for not being at the [STC] 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 all of you. 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 have we been handling the pandemic? You'll recall that right at the beginning, one of the first thing that we have done is to raise fund, and we went out with strong support from our shareholders, particularly Temasek.
We were able to secure $ 15 billion in terms of rights issue. $ 15 billion because it is something a huge sum, of course. It was more than our market cap then. 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 can 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.
At the beginning of this financial year in April, last funding coming in, we have raised a total of $ 22.4 billion, which make us one of the most, if not the most cash-rich, with the most cash liquidity among all the airlines. We didn't stop at fundraising. We also took proactive steps at the early on of the pandemic to manage costs, to talk to our suppliers, to talk to OEMs and defer cash payment. 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 cuts, as well as the painful exercise of cutting staff, 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 when nobody else, nobody, hardly anybody was flying. We have also deployed our resources to take part in the frontline fight against COVID. During the pandemic, we started our second transformation exercise. You can see some of the actions, some of the measures, some of the initiatives that we have taken during that period. That'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 first off 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. We have taken proactive steps to convert capacity from passengers for cargo missions. For example, remove some of the seats 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 for cargo mission.
Our sales and marketing team were also out there, 'cause physical events, physical sales events were not possible, out there with huge digital events in order to bring more awareness to the public about our flight, as well as encouraging more of them to travel. Of course, we continue to prepare our lounge capacity. We continue to invest, and we launched the T3 lounge early part of the year, as you all are aware, adding almost double the capacity so that our passengers will be able to have more space when they go to the lounge. We continue with the training of our pilots as well as cabin crew through digital means. All these are measures that we have taken to prepare the organization for the recovery.
This is a line that you can see our 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. If you look at the deployment of our key resources, both aircraft and crew, you can see that we're always utilizing those key resources ahead of the demand at a much higher utilization level. When 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 surge comes from.
Relative to the other Asia Pacific airlines, we are much ahead of their capacity deployment. Those were the reason why we're able to be first off the block whenever there is a demand, whenever borders are opened, and whenever there are surges in pent-up. You can see that for those reason, we're 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. That's not all. We know that it is not just about handling the pandemic, it's 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. We know that the future will have its fair share of challenges.
We can see that coming out of the pandemic, we have become more resilient, more innovative, and more agile. 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 elaborate, 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, to on the former MI fleet that we have integrated back into Singapore Airlines to put on business lie- flat fleet on the flight.
Going forward, no matter how short the sector is, if you're traveling on business class, you will have a lie flat product. We also went ahead and continued to develop our new product 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 order new freighters. In fact, the A350-900 freighter is an airplane that we have pushed Airbus to develop, and we will be the launch customers for this plane, and we'll participate 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 Malaysia Airlines. You can rest assured that there are others in the works, and in due time we'll announce them. You're aware that we have announced the plan to have in-depth discussions about deepening commercial relationship with our partners in India. In fact, for Vistara, it continued to grow during this pandemic. Vistara is today operating more than 25% of its pre-COVID-19 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 two brands. There are also other new revenue streams that 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, KrisLab continue to tap on internal talents for new ideas for digital projects. We have started a corporate lab to do some research area for revenue as well as training. 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 continue to be high priority for us, particularly in terms of sustainability. You have seen, you have read about our initiative to be the first airline to launch the SAF product.
SAF is Sustainable Aviation Fuel in Singapore, and this will look into the feasibility of deploying SAF for uplift by airplanes by operators at Singapore going forward. 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. 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. We now go to the Q&A session. While we do some basic setup, let's just go through some logistics. We have about half an hour or so for questions, half an hour to 40 minutes. If you could keep it to one question per person, please, that'll be really helpful. We do have a lot of people here. We have some people joining in virtually, so we will take some of those questions as well.
For the Q&A session, we will have Mr. Mak Swee Wah, Executive Vice President, Operations, Mr. Lee Lik Hsin, 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. Why don't we just get started? This gentleman right in here in the blue shirt, please. Thank you.
Yeah. Morning, gentlemen. 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. Another question on dividend payout policy, if you have any.
Sorry, Raymond. 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.
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. The second question is about the dividend payout policy, if you have any.
Okay. The first question is on Vistara-Air India, if there would be any additional equity into the combined venture. The second one is dividend policy. Mr. Goh.
I see. Okay. The Vistara, it is as per what we announced before on, I think, 13 of October. We are looking at deepening commercial relationship and it could involve integrating Vistara and Air India. 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. As you can see, though, 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 result. Thank you.
Thank you. Next question, please. We'll have the gentleman beside him, actually. Yeah.
Hi. Morning. Louis from Credit Suisse. If we can have two quick questions as well, please. Just first in terms of the CapEx, any updates on the CapEx plans since in the first half it seems to be quite moderate down year-over-year to about $ 916 million. Second is in terms of the passenger capacity. I noted in your CEO's charts 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. Thank you.
Sure. If I could repeat that, Mr. Goh. I'm not sure if you caught that.
Maybe, you don't need to repeat. I can hear this one quite clearly.
Okay.
I think you please take the first questions and Lee Lik Hsin maybe the second one. Thank you.
CapEx. Okay. CapEx guidance has not changed since May 22nd. We gave the last CapEx guidance then. You will see in that CapEx guidance a run rate of around $4 billion up to FY 2025/2026, $3.2 billion, then taper off after that. Now, there is a delay in the 777-9 program. I think that's public information. Discussions are still ongoing with Boeing. You can expect as a result of that, the CapEx to move to the right to further out. In line with the delay in the 777-9 delivery. We don't have that guidance yet. We'll 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. In fact, by December of this year, we would have gone up to 80% in that month alone. It's actually an increasing trend, but reflecting an average that includes the earlier months of lower capacity. Thanks.
Thank you. Maybe Chen Chuanren there, please.
Thank you. Chuanren from Aviation Week, Air Transport World. Two quick questions. First question is, how much has Sustainable Aviation Fuel contributed to your Q2 fuel cost? The second question is on the ASEAN-EU open skies. What kind of competition do you foresee, and how are you responding to it? Thank you.
SAF, this is—I mentioned that it is a pilot that we're doing together with CAAS and also with Temasek. Volume, because it's a pilot really to test out how to effectively deploy SAF in Singapore. The uplift is really still quite small, so it doesn't have any material impact to our fuel cost at this moment. The ASEAN-EU CATA , it does provide more flights flexibility between Singapore and Europe and beyond Europe, I think 14x beyond Europe. We are looking at what impact it has in terms of network opportunity for us. We welcome the 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. Thank you.
Hi, I'm Greg Waldron from FlightGlobal. In the results, I noticed that you'd been adding a number of destinations in China, you know, re-adding, you know, Chinese capacity. I wanted to ask you guys how are those Chinese flights performing? Also, do you feel it might be a bit premature given that, you know, 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 of our China flights are performing very well 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, you know, 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 two people at the last row. Yeah, please. Right behind Raymond. Thank you.
Hi. Good morning. This is Jason from DBS Bank. Two quick questions from me. I'm just wondering, how are booking windows looking like today? Do you have any visibility beyond the year-end holiday travel season? 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. Well, obviously, COVID is unprecedented challenge and event for the industry as a whole. Obviously we have re-looked at our fleet plan, particularly on the requirement for the exact fleet that is needed in the future, and also the delivery schedule. You can also see that we have made those changes. We have announced quite a few of them, including how the conversions of fleets. We'll continue to build into our fleet plan flexibility that will allow us to have some ability to vary the fleet plan along the way. Thank you.
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. Actually, the response to those promotions for the early bookings have actually been quite good. 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?
Yeah. Jason, I'll just address a specific question on leases. Yes, we did look at leases as a source of financing during COVID. We just completed a couple more leases, you know, 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, as a source of funds. Our sale-leaseback strategy is first and foremost a risk management exercise. We continue that even in the first half of this financial year. Not so much because we need the cash, but because we continue to balance the risk, particularly residual values of our fleet. Yeah.
Thank you, Kai Ping. We'll go to the lady right at the back row, and then after that, the gentleman behind, beside her.
Hi. Thank you. I'm Selina from Bloomberg News. Two questions. First question is about any kind of aircraft deliveries timeline. 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, like, chips? The second question is about pilots. 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? Thank you.
Swee Wah will answer the question on pilots. On aircraft delivery, some of the delays are well-known. For example, we are expecting a delay in our 777-9 delivery. You know the reason. Boeing has come out and explained it. 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 777-300ER for longer period, just to tie through the capacity requirement. Yes, there has been delays to aircraft delivery due to some of these issues that the manufacturers have, but we do have some flexibility within our fleet. Mak?
Yeah. On pilots, if you recall, we have kept most, in fact, almost all our pilots over the COVID period. 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. 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 two. Single pilot is still far, far, far away, so. I think for now, we should be able to get the pilots we want. Thanks.
Thank you, Mr. Mak. That gentleman, right.
Good morning. I'm Marcus from Channel NewsAsia. I just wanna ask another question on recruitment. You mentioned about the high demand leading into Lunar New Year. Does SIA and/or Scoot plan to recruit any more people to cover this increase in demand, like cabin crew?
We have announced. In fact, in my presentation, I have actually also pointed it out, which is that both Scoot and SIA are on track to recruit 3,000 crew by the end of the financial year. The Lunar New Year demand is actually factored into this recruitment exercise as well. They are catered for. As what Mak mentioned earlier, as far as pilots are concerned, we believe that we do have enough resources to also cater for that peak demand. Thank you.
Thank you. Sorry, we've got a few hands here. Maybe this gentleman here in the red tie, followed by the lady in the orange jacket, please. Thank you. Then there you go.
Hi.
It's on.
It's on? Okay, great. Thanks for taking my question. It's Tim Bacchus from Bloomberg Intelligence, and it's good to see you again, Mr. Goh. It's been a long time.
Hi.
My question relates to the yield side, both passenger and cargo. One of the striking things about the results, obviously, is that you're at record revenues, and yet you're only utilizing, you know, not even potentially 70% of the capacity. The tie-in between record yields and lower capacity, you know, that's obviously there's a lot of demand for travel post-COVID, and there's not as many seats in the marketplace. 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. 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 your fiscal fourth quarter after the peak shipping season is over. Thanks.
Thank you. Lik Hsin oversees both the cargo and passenger, so Lik Hsin, please.
Yeah. Okay. In relation to your question about passenger capacity versus use and the apparent disconnect, use being so high and yet capacity 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. There are others like that as well, where we may not be able to add as many flights as we want. 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, 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. Then, as mentioned before, depending on what the economic situation is and how that affects demand, you know, all that plays into the outcome. On cargo, 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.
Still much elevated from pre-COVID. Just don't compare it against 2021. Beyond that, I think, it's anybody's guess right now. We again, depending on some of the economic uncertainties that we face, will have to wait and see how the rates pan out over 2023. Thanks.
Thank you, Lik Hsin. The lady in the orange shirt, please.
Maybe I'll just add here that, of course, we did say that beyond in our press release. Beyond the Chinese New Year period, we do expect that the other macroeconomic impact on demand could come in. You see that there could be moderation. In fact, there will be moderation in terms of ticket prices. As you know, ticket prices, they're a function of demand and supply. 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.
Thank you, Mr. Goh. Please.
Hi. Thanks for the presentation. It's Ezien from OCBC Credit Research. I have two 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. Just curious if SIA will look to set out some hard targets surrounding percentage usage in, say, which year type of plans. The second question is perhaps for Kai Ping. Is the company looking at certain signposts where you know, if you meet maybe certain equity targets, then SIA will be looking at the redemption of the $ 6.2 billion, the MCBs. Thanks.
For SAF, I mentioned that there's a pilot that we have embarked on. We are actually taking this whole thing about sustainability as a high priority item, not just for management but for our board as well. You can be rest assured that we are looking at it in a very comprehensive manner at how do we meet some of the sustainability targets that we have actually announced, which is by 2050 we want to achieve net zero. 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 a newer technology planes, it right away reduce our carbon emission by 25%. Of course, we're not gonna stop here. There are various initiatives we can look into, and we'll announce them progressively. Kai Ping?
MCBs 2021. MCBs 2021 has the same features as MCB 2020. All the arguments or reasons for redeeming MCBs 2020 that I explained in my presentation just now would be true. 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. We're taking this step by step. No decision has been made at this point on MCBs 2021. We'll take it step by step. We have announced MCBs 2020 redemption. We will. If there's a decision on MCBs 2021, we will make the appropriate announcements. Yeah.
Mayuko, please. We'll take some questions online.
Thank you. 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, you know, based on your experience of running Vistara for several years by now. What do you want from India? What do you wanna do there? What's the minimum that you are aiming to get from the discussion in terms of the stakes representation in operation and stuff? Can you share with us about your multi-hub strategy. You have lost NokScoot during COVID. Do you still want this? Do you still pursue?
What's the next that you wanna do? Thank you.
Maybe I'll start with multi-hub. The reason why we have looked at a multi-hub strategy is because the fact that Singapore really is a small market, five, six million people. We don't have a hinterland of domestic network like many other big countries have. There is a limitation to grow just based on the Singapore market. Of course, we are mitigating some of that through all kinds of partnership, as you can see. We have brought about extension of our network to many other parts of the world, to the Indian domestic points, in many parts of the world, which has been effective and we continue to pursue.
Our multi-hub strategy, it's really to enable us to participate directly in the growth of that particular region or country in a way that we cannot if we are just based in Singapore. 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. We also look at it from a perspective of how it can complement the Singapore hub with synergies between the two countries.
Therefore, that's the reason why we have invested in Vistara. Vistara has done well. It is widely now recognized as the best airline, best full-service carrier in India. As I said, you know, is now having second-highest market share in domestic India. Yes, we have had some failed ventures overseas before. NokScoot being one of them, fallen victim to COVID. 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. We will keep our options open and if there are opportunities we'll certainly evaluate them. Thank you.
Thank you, Mr. Goh. We'll just take some questions which have come in, virtually right now. The first question, which Mr. Goh you might have already answered, is if Vistara did integrate with Air India, what ways could you ensure that you retain your market foothold in the India market? Is there anything you wish to add on that?
You know, all discussions regarding Vistara and whether or not it will be integrated with Air India and so forth are obviously confidential discussions that we are having with the Tata, with our partners, Tata Sons. We will make appropriate announcement when the time comes.
Thank you. The next question is, current passenger yield is around 25%-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 beyond the Lunar New Year?
Lik Hsin, please.
Yeah. 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. Airfares 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 a fair airfare, if that's the right way to phrase it, against every other airline out there. So there's a second part to that.
The second question, can you provide yield guidance before Lunar- beyond Lunar New Year?
Well, we don't provide yield guidance, but as I said, you know, 2022 is a very unique year and because of the lack of supply and the pent-up demand. In general, we have already made statements around where we expect 2023 to go, in respect of passenger yields. Thanks.
Thank you. We'll take a question from Peck Gek , then followed by the lady here.
Morning. I'd like to find out the rationale for the hedging strategy of up to 10% on the declining wedge profile. Because SIA has always adopted a neutral position, right? How does that square off?
Hedging?
Yeah. What is the impact of rising interest rates and a strengthening U.S. dollar on SIA? Thanks.
Maybe I take the second question. It is really rising interest rates and U.S. dollars is 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? That's not something that is clear at the moment because as many economists have pointed out, this time around with inflation and potential recessions, it is happening when we are seeing very strong employment in all major or most major economies. We don't know exactly what the impact will be in terms of passenger demand for travel. 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.
We'll remain nimble and flexible and respond accordingly if there's a need to put the changes in the marketplace. Kai Ping.
Yeah, CEO, I'll just add one piece of information. I think what Peck Gek is looking for on U.S. dollar exchange rate. I'll just maybe point out that we did two USD bond issuance. The funds remain in U.S. dollars. The reason is because those funds were raised earmarked for CapEx. We are long at this point in time on U.S. dollar. The increase in exchange rate versus Sing dollar does not really affect us at this point in time as far as CapEx is concerned. Yeah. Now, hedging, it is not a strategy that we are at 10% declining hedge for the period beyond quarter two, FY 2023/2024 to quarter four, FY 2023/2024.
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. Yeah.
Thank you. Lady here, please, in the third row. Thank you.
Hi, this is [Chu Peng] from OCBC. May I know your projected capacity level for passenger and cargo for end of Q3 and also Q4? Second question is on the recovery of business travel. May I know the demand so far? Yeah. Thank you.
Lik Hsin, can you take these questions?
The capacity, I already mentioned, we will be at about 80% for December 2022. That's largely where we will be at as well for March 2023. 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. 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. Since around the June, July timeframe, we have seen really the corporates going back on the road again. Thanks.
Yeah. Maybe I'll just bridge that answer with what we put out, the guidance we put out in our press release. You see a different number for the average for Q3 and Q4. We guided 76%. Lik Hsin just mentioned 80%. We are expecting to get to 80% by December, but there's monthly variations to do with you know, 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. Yeah.
Thank you. Maybe just that gentleman there, and then we'll come back to you.
Hi, this is Shawnn from JP Morgan. A couple of questions here. 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? The second question is on normalized passenger and cargo yields. Do you mind to provide some guidance on where do you think cargo and passenger yields could finish in a post-COVID environment? Thank you.
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 or load or something.
It's really a question on when we will get to 100-
Maybe, can Lik Hsin, are you able to hear those questions?
Yeah.
It sounds more like your area.
Yeah, I can answer the questions if that's okay with you.
Okay, please go ahead.
Yeah.
Yeah. Please do.
As we mentioned, we kept most of our resources. If China does open up in the very near term, between now and March, we do have capability to scale up further. 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, there's no material increase of our China flights between now and March, but who knows, I guess. 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 one, two more questions. We'll go to Brendan first, if you don't mind. Yeah.
Hi, good morning. Brendan Sobie with Sobie Aviation. I had two 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. From a seat perspective, it's at almost 90% now. Even though you have that ASK 80% figure, there's actually faster LCC recovery.
I was just wondering if this is permanent and, you know, 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 only SIA used to operate, like nonstop to Tokyo and Seoul, those kind of routes. 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, extremely important route, but is still even with the increase of one additional flight with the winter schedule, you're still only five of the nine you had. I was just wondering what...
How, what kind of impact that has had and, you know, when you might see that coming back? Thank you.
Brendan, you can be rest assured that we would like to work on bringing back more Jakarta capacities. We are working with relevant agencies and authorities to try to see how we can bring that about. Something that clearly we are working hard on. On Scoot, maybe I'll ask Leslie in the audience to take that question.
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 reopened up and scale up quite aggressively since April when the Southeast Asia region opened up. Going forward, we are planning to reinstate or launch some of the former SilkAir points in Indonesia. For example, pre-COVID, Scoot only has five points in Indonesia. Now we have eight points because we have launched some of the former SilkAir destinations. In the coming months, we are planning to add another three 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.
Thanks for the follow-up opportunity. 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. It was called something like Gains on Closed Trades. Just a question on that. Thanks.
Yeah. I explained this in a previous presentation, so I think you have just come back to cover Singapore Airlines. I'll cover this again. During COVID, if you recall, we had a very low flight program, and we found ourselves in overhedge position. Those were hedges taken pre-COVID on a pre-COVID capacity forecast. During the depths of COVID, we found ourselves in a 3%-4% range of pre-COVID capacity. We are overhedge position. In 2021, 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.
We took sell swaps to match the buy swaps so that they were closed out. Those trades only mature at a point in time when those sell swaps and buy swaps only mature at the dates that the original positions mature. I don't know whether I'm explaining clearly. The P&L, the impact on P&L is already fixed, but we cannot recognize it until the buy swaps and sell swaps mature. Yeah. In the second half of 2022/ 2023, we are expecting another $34 million to flow through the P&L. It's already done, it will flow through. FY 2023/ 2024 to 2024/ 2025, we are expecting $110 million to flow through. Gains, yes.
Great. Thank you. We've had about 45 minutes. Thank you everyone for your time. Thank you, panelists. Stay safe, everyone, and we'll see you for the full year meeting analyst briefing. Have a good day. Thank you.