Whalesbook
Singapore Airlines' significant profit drop stems partly from the absence of a one-time accounting gain related to the Vistara merger. However, a larger factor is the growing financial drag from its investment in Air India. Air India's mounting losses are a key concern for SIA's profitability and its long-term strategy in India's competitive aviation market.
Profitability Declines Sharply
Singapore Airlines Group (SIA) announced a 57.4% decrease in net profit for the fiscal year ended March 2026, falling to SGD 1.184 billion from SGD 2.778 billion the previous year. This contraction occurred despite total group revenues rising 5% to SGD 20.552 billion. The primary reason for the profit slide was the absence of SGD 1.098 billion in non-cash accounting gains recognized during the Air India-Vistara merger in November 2024.
More critically, SIA's results absorbed a full year's share of Air India's losses, totaling SGD 846 million. This marks a significant increase from the prior period, when only four months were accounted for. Air India reported a record loss of approximately $2.8 billion for FY2025-26, which cost SIA an estimated $743 million. SIA's stock recently traded around SGD 6.27. The company has a market capitalization of about SGD 19.7 billion, and its trailing twelve-month P/E ratio is between 7.4 and 8.25, suggesting the market may be factoring in these financial pressures. The stock has fallen nearly 6% over the past year, trading near its 52-week low.
Air India's Struggles and Sector Challenges
SIA's 25.1% stake in the Air India Group, a key part of its multi-hub strategy, is proving to be a significant financial burden. Air India is grappling with numerous challenges, including industry-wide supply chain issues, operational limits in key Middle Eastern markets, airspace restrictions, and high jet fuel prices. Geopolitical tensions in the Middle East are worsening fuel costs, affecting routes such as Delhi-Chicago.
This situation contrasts with regional competitors. Cathay Pacific, for example, reported a strong net profit of HK$10.8 billion for FY2025, driven by passenger demand and stable cargo volumes. Emirates also posted record profits and revenues for FY2025-26.
SIA's performance has also been affected by past instances where earnings misses led to analyst downgrades, such as a JPMorgan downgrade following a Q1 FY2025/26 earnings shortfall. Concerns have also been raised about shareholder dilution, as earnings per share growth has not kept pace with profit growth, suggesting reported net profit might not fully reflect sustainable profitability.
Key Concerns for Investors
The main argument against SIA's investment in Air India centers on its escalating costs. Air India's $2.8 billion loss for FY2025-26 is a continuation of its performance issues before the Tata Group acquired it. While SIA management emphasizes the long-term strategic value and supports Air India's transformation, the immediate financial impact is substantial.
Air India's debt stands at approximately $12.91 billion, with cash reserves of $8.78 billion on a trailing twelve-month basis. A net debt-to-equity ratio of 30% indicates a leveraged financial structure, making it vulnerable to extended periods of losses from its investment. The market appears to reflect this drag, with SIA's stock trading near its 52-week low. Analyst consensus is mostly 'Hold', suggesting limited immediate upside given Air India's financial distress and broader aviation sector pressures.
Future Outlook
Singapore Airlines has reaffirmed its commitment to its 25.1% stake in Air India, viewing it as essential for its long-term growth and its multi-hub strategy in a fast-expanding aviation market. The company is working with Tata Sons on Air India's transformation, focusing on modernizing the fleet and improving customer experience. Analysts, however, maintain a cautious outlook, with 'Hold' ratings and price targets indicating modest potential upside. SIA's ability to manage ongoing operational costs, fuel price volatility, and integration challenges at Air India will be crucial for its future financial performance.