Singapore Airlines (SIA) was hit hard by the Covid pandemic and softening oil prices, seeing the major Asian carrier record a group net loss of S$212m for the financial year ended March 2020, a reversal from the $683m profit last year.
Passenger capacity cut by 96% as demand collapsed due to Covid-19.
For the full year, group operating profit fell S$1,008m year-on-year to S$59m, as the deterioration in operating performance from January to March 2020 eroded the improvements made in the first nine months of the year.
In its results statement, SIA said: “Fuel prices plunged towards the end of the quarter as the demand for oil slumped due to the Covid-19 pandemic amid an unexpected price war and a consequent supply glut.
“This led to fuel hedging losses on contracts maturing during the quarter. Furthermore, the expected capacity cuts in FY20/21 will lead to lower fuel consumption than previously anticipated based on normal operating conditions, causing the Group to be in an over-hedged position. As a result, the Group had to record substantial mark-to-market losses of S$710m on these surplus hedges.”
It added: “The drastic cuts in passenger flight operations have significantly reduced overall cargo capacity. However, there has been strong demand from global supply chains for air freight, especially for the movement of critical medical supplies and essential goods.
“Beyond maximising freighter utilisation during this time, we have also deployed passenger aircraft on cargo-only missions, and secured regulatory approval to transport freight in passenger seats and overhead bins.
“As aircraft payments make up a significant portion of our capital expenditure, we engaged the aircraft manufacturers early to negotiate adjustments to our delivery stream for existing aircraft orders and progress payments to reduce near term cash outflows.
“This will also help to moderate capacity growth in the near term, while we remain committed to our longer term fleet renewal programme.”
A Rights Issue is expected to complete by June 2020 and will raise gross proceeds of approximately S$8.8bn. SIA Group also has the Option of issuing up to an additional S$6.2bn through Additional Mandatory Convertible Bonds.
This is intended to provide the Group with additional liquidity if this crisis prolongs, and would only be tapped if necessary.
“We are concurrently exploring other sources of funding, including secured financing and sale-and-leaseback transactions. All of these will allow the Group to be in a position of strength and be able to capture future growth opportunities.”
In its outlook, SIA said the prospects for a recovery in international air travel in the months ahead depend upon when border controls and travel restrictions ease.
“There is no visibility on the timing or trajectory of the recovery at this point, however, as there are few signs of an abatement in the Covid-19 pandemic.
“The Group will maintain a minimum flight connectivity within its network during this period, while ensuring the flexibility to scale up capacity if there is an uptick in demand.”
In the meantime, the demand for essential goods such as medical supplies, pharmaceuticals and fresh foods “still exceeds airfreight capacity on many key lanes” due to the sharp reduction in bellyhold capacity.
This is expected to “sustain cargo revenues for the near term”.
The airline group will also continue to pursue charter opportunities, while closely monitoring for changes in demand.
