Singapore Airlines Fuel Hedging Looking Risky
Mar 8, 2020, 4:39 am
#1
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Singapore Airlines Fuel Hedging Looking Risky
Shedding some light on Singapore Airlines fuel hedging as it is looking risky with the recent collapse in fuel prices.
For Q4 FY19/20 (January to March 2020 period), they are hedged at 79% at USD 76 per barrel Jet Fuel which equates to USD 54.32 per barrel at Friday's closing price. That equates to a loss of -40% per barrel which is significant given the current business environment.
Moving forward, for FY20/21 (April 2020 to March 2021), they are 51% hedged for Jet Fuel at USD 74 per barrel and 22% hedged for Brent Oil at USD 58 per barrel. At current levels, this is underwater by a large margin. I am anticipating the global economy to be under tremendous pressure for the rest of 2020 and into 2021.
Further afield, for FY21/22 to FY24/25, the hedging stands at up to 7% hedged for Jet Fuel at USD 71 per barrel and up to 52% hedged for Brent Oil between USD 58-62.
The above is risky for coming years for SIA's fuel hedging and there isn't much room for them to add more in the near term at cheaper rate.
Interesting times ahead for SIA Group as it faces its own challenges with its LCC strategy with Scoot, loss making with Silkair routes and its integration into Singapore Airlines brand.
For Q4 FY19/20 (January to March 2020 period), they are hedged at 79% at USD 76 per barrel Jet Fuel which equates to USD 54.32 per barrel at Friday's closing price. That equates to a loss of -40% per barrel which is significant given the current business environment.
Moving forward, for FY20/21 (April 2020 to March 2021), they are 51% hedged for Jet Fuel at USD 74 per barrel and 22% hedged for Brent Oil at USD 58 per barrel. At current levels, this is underwater by a large margin. I am anticipating the global economy to be under tremendous pressure for the rest of 2020 and into 2021.
Further afield, for FY21/22 to FY24/25, the hedging stands at up to 7% hedged for Jet Fuel at USD 71 per barrel and up to 52% hedged for Brent Oil between USD 58-62.
The above is risky for coming years for SIA's fuel hedging and there isn't much room for them to add more in the near term at cheaper rate.
Interesting times ahead for SIA Group as it faces its own challenges with its LCC strategy with Scoot, loss making with Silkair routes and its integration into Singapore Airlines brand.
Mar 8, 2020, 5:06 pm
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Update: Monday, 09 March 2020
With oil prices falling -20% at Asia open, the fuel hedging losses at Singapore Airlines are deepening.
This is not looking good for the airline with high hedges in place for another 5 years ahead.
With oil prices falling -20% at Asia open, the fuel hedging losses at Singapore Airlines are deepening.
This is not looking good for the airline with high hedges in place for another 5 years ahead.
Mar 9, 2020, 11:14 am
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Who is gaining with the hedge?
This party can procure that fuel for (maybe) only USD 35/gallon and sell it to SQ for more than double the price.
Mar 9, 2020, 11:27 am
#7
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Nobody delivers or takes delivery of any commodities on the financial markets. The suppliers sell fuel at prevailing market and contract determined prices (definitely not USD 74/gallon), and they themselves would have taken hedge positions which ideally should be in the money right now, to partially compensate for the loss in revenue.