CAG earnings hit by one-off impairment charge, pandemic

Singapore

WEIGHED down by a one-off impairment charge and turbulence from the pandemic, airport operator Changi Airport Group (CAG) saw its net profit for the financial year ended March 31, 2020 slide 36 per cent year-on-year to S$435 million.

For the year under review, the group took a one-off, non-cash impairment of assets in Brazil's Tom Jobim International Airport, in which subsidiary Changi Airports International holds a 51 per cent stake. This contributed a S$200 million reduction to the bottom line.

Market conditions in Rio de Janeiro, Brazil remain challenging, while Covid-19 and the collapse of airline Avianca Brasil has resulted in weaker passenger traffic, it said.

Still, group revenue for FY19/20 rose 2.6 per cent to S$3.12 billion, lifted by the launch of Jewel in April last year.

Meanwhile, expenses were 6 per cent higher at S$2.25 billion owing to higher depreciation and operating expenses from Jewel and the expansion of Terminal 1.

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While Changi Airport saw a growth of 4.2 per cent in passenger traffic in the first 10 months of the financial year, the spread of Covid-19 and closing of international borders sent the industry into a tailspin.

In a message in CAG's annual report, chairman Liew Mun Leong and chief executive Lee Seow Hiang wrote: "The strong performance that the group had chalked up in the first 10 months of the year was severely negated by the collapse in air travel." Mr Liew retired from CAG last month.

They went on to highlight that passenger traffic in February and March slumped 33 per cent and 71 per cent year-on-year respectively.

By April, passenger traffic had nosedived by 99.5 per cent.

Achieving a recovery to levels of about 30-50 per cent in passenger traffic in the near to mid term as borders gradually reopen would put Changi in a comfortable position, Mr Lee said.

Meanwhile, concession revenue also took a hit as travel demand dried up, falling 58 per cent in February and March. In the first decline since FY2008/2009, the airport saw 62.9 million passengers for the financial year, down 5 per cent year-on-year.

CAG said: "The operating results of the group are expected to be materially and adversely impacted for the year ending March 31, 2021. However, CAG will continue to invest prudently to ensure Changi Airport's long-term competitiveness while maintaining high standards of safety and security."

Starting May 1, Terminal 2 has been shuttered for an 18-month period, while Terminal 4 was shut on May 16 until air travel starts to pick up again.

The government has also hit pause on the construction of Terminal 5 for at least a two-year period as it reassesses air travel demand forecasts and considers any design changes that might be necessary post-Covid.

The recovery in global air travel has proven slower than initially expected, with the aviation industry facing hurdles such as awaiting the re-opening of international borders and a vaccine as well as navigating the various regulations around air travel.

According to the International Air Transport Association, travel may not recover to pre-Covid levels until 2024.

Changi Airport, which had over 50,000 workers prior to Covid-19, has cut reduced external or third-party contracts as part of its cost-cutting measures.

For its employee base of over 2,000, CAG has introduced salary cuts of up to 30 per cent for management and staff, but has not retrenched workers. CAG is also suspending dividend pay-outs for FY19/20.

Since the pandemic erupted, the government, Singapore's aviation regulator and CAG have worked together on support packages to help stakeholders in the aviation community, which includes rebates on landing and parking charges as well as rents.