Singapore Air reports its biggest-ever loss

Singapore Airlines Ltd. 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 ($1.7 billion) for the three months ended Sept. 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% to S$783.8 million, the carrier said in an exchange filing Friday.

Singapore Airlines is cutting about 20% of its workforce and has raised S$11 billion 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 like 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 program in October as it tries to revive its business amid the devastating outbreak.

For the half year ended Sept. 30, Singapore Airlines reflected S$1.3 billion 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.

Old Jets, Fuel

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

The carrier’s fuel hedging policy, meanwhile, contributed to a S$563 million 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 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% of its jet-fuel requirements in Singapore Jet Kerosene at a weighted average price of $74 a barrel. Its Brent contracts covered 22% 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% Friday ahead of the earnings announcement. They’re down 45% this year, compared with a 20% 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% 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 travelers and create green corridors aimed at preventing new outbreaks.

Singapore, a small island nation dependent upon international tourism and trade, 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 programs 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.