SATS struggles with lost licence incentives in 2018

Licence fee incentives for Changi Airport have already expired in March 2017.

The next year for SATS is expected to be even more challenging, Maybank Kim Eng analyst Neel Sinha said. Its profits for the fourth quarter of 2017 dipped 1.8% in a year to $65.4m as revenue was pulled down by the deconsolidation of SATS HK Limited (SHK) and lower contributions from its food solutions business.

Sinha noted that SATS has guided at the beginning of the year that it would be a challenging year for costs with licence fee incentives for Changi Airport expiring March 2017 along with various other government incentives also expiring during the course of the year.

The fee incentives for Changi Airport covered passenger service fees, landing fees, and franchise fees for flight catering and ground handling services, amongst others.

"These factors would result in around 2.5%-3% increase in cash operating costs by our estimates, ceteris paribus," Sinha added.

Nonetheless, the company managed to keep 2018 operating costs flat YOY with cost rationalisation and productivity initiatives aided somewhat by softer raw material prices. Group expenditure was slashed by $2.6m to $377.4m, as staff costs and utilities expenses fell mainly due to the deconsolidation of SHK.

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