Singapore Airlines announces a full year loss

Singapore Airlines posted a full year loss as COVID-19 crippled the passenger traffic in fourth quarter of financial year. The airline announced that it has cut passenger capacity by 96% and this was topped by mark-to-market fuel hedging losses due to unprecedented plunge in fuel prices.

There was a drastic drop of $894 million in revenue in Q4 compared to the corresponding quarter last year. The group swung into operating loss of $803 million for the quarter and a net loss of $732 million for the same period. The group net loss was $212 million for the entire year and recorded an operating profit of $59 million for FY19-20.

The airline had good performance in the first three quarters of the financial year and was driven by robust passenger traffic numbers. The airline was taking initiatives as part of its transformation programme. The market conditions changed abruptly in February 2020 and the airline had to shrink its network due to global travel restrictions and border controls as the COVID-19 outbreak started spreading across the world. The passenger traffic dipped in mid-February to mainland China and eventually to the rest of the network by March.

The airline is taking multiple measures to save costs and control cash flows. One of the measure has been to engage with the aircraft manufacturers to negotiate adjustments to delivery stream for existing orders. This will not only help with the cash flow but also rationalize capacity. The airline has parked some of its A380s in Australia.

On 26th March 2020, the group announced a rights issue through Rights Shares and Rights Mandatory Convertible Bonds to build liquidity and strengthen its balance sheet. The rights issue is expected to complete by June 2020 and will raise gross proceeds of approximately $8.8 billion.

Operating profit for SIA fell 70% to $294 million. The total expenditure increased primarily due to fuel hedging losses. For SilkAir, the operating loss was $112 million. The airline had its B737 MAX aircraft grounded and transfer of some capacity to low cost sister airline Scoot, which registered an operating deficit of $198 million.

Fuel hedge loss

The sudden drop in fuel prices has led to the group record $710 million mark-to-market losses as the group was in over-hedged position for the last financial year. The drop in revenue and fuel hedging losses could not be compensated even with government support and other cost cutting measures.

The airline has larger exposure to hedged fuel in the following quarters and could also see additional losses.

Cargo Service

The airline has increased its freighter utilization. The airline operates seven B747-400F. As the airline also carried a lot of cargo as part of its passenger operations, the drop in passenger service had led to a decrease in cargo carrying capacity and like many other carriers, the airline is operating a few passenger aircraft for cargo operations.

Tail Note

The SIA group operates Singapore Airlines, Silk Air and Scoot which are based in Singapore and has investments in India and Australia. With TATA, SIA has a joint venture to operate Vistara with SIA having a 49% stake while the group has part stake in Virgin Australia which is currently into voluntary administration.

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