SATS can’t find enough workers as tourists return

What happened?

SATS reported a weaker than expected set of results for the quarter ending March, disappointing investors looking at the company as a beneficiary of Singapore’s Covid re-opening. 

This caused SATS’ share price to fall by close to 10%, becoming the worst performing stock in Singapore’s benchmark STI index in the past week. 

What does this mean?

SATS’ core net losses increased to $42.5 million in the latest quarter from $33 million in the previous quarter. 

While SATS grew its revenue with rising passenger traffic, its operating costs saw a more significant increase. 

Firstly, labour costs were higher with an increase in headcount and a rise in wages. 

Next, it also saw higher raw material costs as the price of food ingredients rose. 

More importantly, the company expects that such cost increases will continue to weigh on the company’s profit in the coming quarters. 

Why should we care?

Cost inflation could hurt company profits

We are not the only ones having to cope with higher cost of food. 

Companies with significant food ingredient input costs also must cope with the sharp rises in the cost of raw materials. 

According to Bloomberg data, the price of wheat that goes into your bread is up by 35% this year. 

The price of the orange juice that you’d always ask on your inflight meal is up by 28% this year. 

Apart from food ingredient costs, it also has to face higher costs for the staff it is looking to hire once again. 

The staff who help with your flight check-ins (the additional work of checking your vaccination status doesn’t help). The baggage handlers who make sure our check-in baggage arrive as soon as we clear the customs. 

Then they have to find a way to pass on these costs to their airline customers or end up having their profits being squeezed. 

Warren Buffett once said that “The single most important decision in evaluating a business is pricing power”.

These words can’t have more truth in finding good businesses to invest in today.