Singapore Airlines reports its biggest-ever loss in third quarter

Fuel hedging and fleet impairment charges weighed on the carrier’s bottom line

Singapore Airlines planes sit on the tarmac in Singapore's Changi Airport. Singapore Airlines is cutting about 20 per cent of its workforce and has raised S$11bn in funds through a rights offering and loans in a bid to survive the downturn. ReutersShow less

Singapore Airlines posted its biggest ever quarterly loss as the coronavirus decimated travel demand and fuel hedging and fleet impairment charges weighed on its bottom line.

The carrier reported a net loss of S$2.3 billion ($1.7bn) for the three months ended September 30 versus a S$94.5 million profit the same period a year ago, before Covid-19 spread around the world, closing borders and all but putting an end to international travel. Revenue plunged 81 per cent to S$783.8m, the carrier said in an exchange filing on Friday.

Singapore Airlines is cutting about 20 per cent of its workforce and has raised S$11bn in funds through a rights offering and loans in a bid to survive the downturn.

The International Air Transport Association forecasts passenger demand may not return to pre-Covid levels before 2024. The situation is particularly dire for carriers such as Singapore Airlines that have no domestic market to fall back on.

“The recovery from the Covid-19 pandemic is likely to remain patchy, given the new waves of infections around the world and concerns about imported cases,” Singapore Airlines said in the statement. “Nonetheless there, are early signs of optimism. Customers are slowly becoming more confident about air travel, given the robust health and safety measures that have been put in place by airlines, airports and governments.”

The company implemented a second three-year transformation programme in October as it tries to revive its business amid the devastating outbreak.

For the half year ended September 30, Singapore Airlines reflected S$1.3bn in impairment charges due to the removal of 26 older aircraft after reviewing its network to determine the size and mix of its fleet over the longer term. That included seven A380s, eight 777s, nine A320s and two A319s.

The carrier said in July that the review could lead to a material impairment of about S$1bn on the carrying values of older generation aircraft, particularly Airbus A380s. The main line had 134 aircraft in its fleet at the end of December last year, including 19 A380s.

Customers are slowly becoming more confident about air travel, given the robust health and safety measures that have been put in place by airlines, airports and governments

The carrier’s fuel hedging policy, meanwhile, contributed to a S$563m loss. In 2017, Singapore Airlines extended some of its fuel-hedging contracts to as far out as five years, from the usual 24 months. The airline said on Friday it has paused fuel hedging activity since March given the uncertain pace of recovery.

For the fiscal year that will end March 31, the airline had planned to hedge about 51 per cent of its jet-fuel requirements in Singapore Jet Kerosene at a weighted average price of $74 a barrel. Its Brent contracts covered 22 per cent of its projected annual consumption at an average $58 a barrel. Singapore Jet Kerosene touched a low this year in May of $21.56 a barrel and is currently trading at $43.41.

Singapore Airlines’ shares rose 0.3 per cent on Friday ahead of the earnings announcement. They’re down 45 per cent this year, compared with a 20 per cent drop for the benchmark Straits Times Index.

Underscoring the long and difficult road to recovery, Singapore Airlines expects to only be back to around 16 per cent of regular capacity by the end of January next year. It has restarted some routes, including its non-stop service to New York, and plans to gradually reinstate flights to places such as Brunei, Kathmandu and Male.

Singapore Airlines’ executive vice president of commercial Lee Lik Hsin said last month the airline is cautiously optimistic as governments reopen their borders for business travellers and create green corridors aimed at preventing new outbreaks.

Singapore is working hard to reopen its borders. It’s planning a travel bubble with Hong Kong that will use tests to replace mandatory quarantine and has opened to visitors from other countries deemed as low risk, including New Zealand and China.

The carrier also said earlier this month that it has set up a new business offering training programmes to other companies in a bid to generate an additional source of revenue. The Singapore Airlines Academy will tap decades of experience from the carrier’s staff to provide a range of training to third parties, including helping companies with digital transformation.