Just like all other airports around the world, Singapore Changi Airport has not been immune to the global disruption of air traffic caused by the COVID-19 pandemic. Being a hub airport completely reliant on international traffic in a world where international travel has been severely restricted, the airport faced a reduction in passenger traffic from January 2020 to August 2020 by -83.5% compared to the same period in 2019.
The operator of Singapore Changi Airport, Changi Airport Group, has recently its financial results for the financial year ending in March 2020. Not surprisingly, the group's financial performance was affected by the disruptions in air traffic in the last two months of the financial year, despite a strong performance for the first ten months.
In this article, we review Changi Airport Group's operational and financial performance over the past ten years to understand the extent to which the group has successful managed its business fundamentals as well as any underlying challenges to its financial well-being that have to be resolved.
Over the past ten years, passenger traffic at Singapore Changi Airport grew at an average annual growth rate of 4.3%, reaching 62.9 million passengers in the year ending in March 2020 from 43.0 million passengers in the year ending in March 2011.
The year ending in March 2015 had been a challenging period of time for Singapore Changi Airport with passenger traffic growing by only 0.2%. This was due to a loss in passenger confidence with three airline incidents happening in a span of 10 months. Furthermore, socio-political developments in China and Thailand posed a disruption to air travel between Singapore and these markets.
While passenger traffic had seen positive growth annually for the past nine years, it fell by 5.1% for the year ending in March 2020 compared to that in the year ending in March 2019. This was due to the disruption of the passenger traffic from the months of February 2020 and March 2020 as the impact of the COVID-19 pandemic began to be felt globally.
Aircraft movements at Singapore Changi Airport followed a similar trend with an average annual growth rate of 3.3% over the past ten years to reach 363,000 movements in the year ending in March 2020 from 271,286 movements in the year ending in March 2011.
In line with the trend of stagnant passenger traffic growth, aircraft movements in the year ending March 2015 fell by 2.4% compared to that in the previous year.
Aircraft movements fell by 6.0% in the year ending in March 2020 compared to that in the year ending in March 2019 with the onset of the global COVID-19 pandemic from February 2020.
In comparison to the growth in passenger and aircraft traffic, growth in cargo traffic at Singapore Changi Airport over the past ten years has been more challenging, with the average annual growth rate being 0.8%. Due to the disruption of the global supply chains caused by the COVID-19 pandemic as well as the fallout from trade disputes in the region, cargo traffic in the year ending in March 2020 fell by 7.9% to 2 bil tons compared to that in 2019.
Changi Airport Group's turnover grew at an annual average rate of 8.85% over the past ten years to reach SGD 3.1 bil in the year ending in March 2020. This could be credited to successful management of the both the aviation and non-aviation components of the business, the latter including the retail concessions and property businesses.
The group's turnover in the year ending in March 2020 increased by 2.6% compared to the previous year with business being affected by the COVID-19 pandemic in February and March 2020.
Changi Airport Group's operating expenses (opex) grew at a similar annual average rate of 8.76% over the past ten years.
The biggest increase in annual operating expenses was seen in the year ending March 2019 by 28.6% compared to the previous year. This was due to a 52.8% increase in depreciation and amortization expenses to SGD 546 mil with the opening of new infrastructure facilities in Changi Airport and the full-year consolidation of Tom Jobim Airport in Brazil.
The group's earnings before interest, taxes, depreciation, and amortization (EBITDA) grew at an average annual growth rate of 11.1% over the past ten years, which was much higher than the average annual growth rate for passenger traffic at 4.3%.
This translated into a 6.5% average annual growth rate for EBITDA per passenger, with the group generating SGD 25.4 of EBITDA per passenger in the year ending March 2020 from SGD 14.4 generated in the year ending in March 2011.
It is evident that Changi Airport Group has managed to generate a consistent EBITDA margin of around 49-50% annually and this is a strong indicator that the group has managed its business fundamentals well.
However, the group currently operates its business in a climate in which revenues from its traditional customers are unpredictable and having cash available is important to the day-to-day running of airport operations.
At the end of March 2020, Changi Airport Group reported that it held SGD 2.4 bil in cash and cash equivalents, a 37.4% increase from that held at the end of March 2019. According to Changi Airport Group, this increase was generated mainly from operating activities bouyed by the strong performance during the first ten months of the financial year. Changi Airport Group has therefore managed to strengthen its cash position in order to manage the challenges of the COVID-19 pandemic.
The SGD 1.7 bil in cash and cash equivalents held by the group at the end of March 2019 appeared to be a low point in terms of liquidity with cash and cash equivalents falling annually from the SGD 3.8 bil held by the airport at the end of the year ending in March 2015. Much of the outflow of cash over the previous four years had been in the direction of capital developments such as Terminal 4, Jewel, the expansion of Terminal 1 as well as the three-runway system.
Data from Changi Airport Group's annual reports show that Changi Airport Group's annual capital expenditure has been around SGD 1 bil since the year ending in March 2016 with the exception of the year ending in March 2017 where capital expenditure rose to SGD 1.4 bil for the year.
With the current crisis warranting limiting capital developments at the airport to bare necessities - the Terminal 5 project has already been suspended - it is expected that annual capital expenditure over the next few years would be very much reduced , easing the pressure on Changi Airport Group's cash position.
The group's net cash from operations was able to increase at average annual growth rate of 13% from the year ending March 2016, which was also the start of the period where there was a heavy outflow of cash of over SGD 1 bil annually directed at capital developments.
In fact, from the year ending in March 2018, there had been an increase in annual free cash flow that reached SGD 556 mil in the year ending in March 2020, thus strengthening Changi Airport Group's cash position.
The improvement in Changi Airport Group's cash position enabled it to curb the decrease in the annual value of its current assets, with current assets at the end of the year ending March 2020 reaching SGD 2.9 bil, a 29.8% increase from that at the end of the year ending March 2019.
The biggest annual increase in total assets over the past ten years was in the year ending in March 2018 as Changi Airport Group acquired and consolidated Tom Jobim International Airport in Brazil. This acquisition was translated into the balance sheet as intangible assets of the value of SGD 5 bil and resulted in an increase in total assets from SGD 9.3 bil to SGD 14.8 bil.
With the acquistion of Tom Jobin International Airport in Brazil, Changi Airport Group saw the biggest increase in total liabilities in the year ending in March 2018 due to concession payables which represent the obligations that the Brazilian Airport has to the Brazilian National Agency for Civil Aviation for the right to operate the airport.
The use of cash for the funding of capital development projects as well as the need for annual payment of concession fees for the operation of Tom Jobin International Airport contributed significantly to the decline in the group's current ratio from 5.8 in the year ending in March 2014 to 0.9 in the year 2019.
A current ratio of 0.9 would mean that the group's liquidity position is very much at risk as it would be unable to cover current liabilities with its current assets. In the current climate where current liabilities are unable to be covered by cash generated from airport operations, the group's liquidity position would be at an even greater risk.
Fortunately, the group was able to strengthen its cash performance due to an improved operational performance for the first ten months of the year ending in March 2020 as well as reduce its short-term loans and borrowings. This enabled the group's current ratio to reach a more comfortable position at 2.0 which would enable it to better face the challenges brought about by the COVID-19 pandemic
While it is extremely difficult to predict the future and when the global passenger traffic will recover to pre-COVID-19 levels, it appears that Changi Airport Group has shown an ability to strengthen itself against the challenges brought about by the pandemic.
It is expected that Changi Airport Group will continue to be prudent in its financial management strategies and continue to keep operating and capital costs as low as possible while maintaining its operational efficiency. At the same time, it would have to think out of the box to generate revenue from alternative sources in this new normal.
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