SQ quarterly profit down 43%

[MAN Flyer]

* Q3 net down 43% on hedging losses, cargo demand weakens
* sees weak demand for air transport in 2009
* says to adjust flight schedules, capacity

SINGAPORE - Singapore Airlines, the world's largest airline by market value, posted a 43 per cent drop in quarterly profit, hurt by hedging losses and slowing demand for travel and cargo amid a global economic downturn.

Singapore Air, which ranks ahead of Japan's All Nippon Airways, also warned that demand for air transport will remain weak this year as global trade slows. The city-state's flag carrier may continue to scale back flights and reduce capacity to cope with the downturn.

Singapore Air, 55 per cent-owned by state investor Temasek Holdings, has seen declining passenger demand as the global slowdown crimps corporate and leisure travel, forcing it to cut flights to other Asian cities.

Global passenger traffic will fall 3 per cent this year, the first drop since 2001, and airline losses will total US$2.5 billion, putting hundreds of thousands of industry jobs at risk, the International Air Transport Association (Iata) said in December.

Singapore Air's October-December net profit fell to S$337.2 million (US$225 million) from S$590 million, beating a forecast for S$312 million by four analysts.

The airline saw some relief on the cost side as jet fuel prices fell sharply. Jet fuel traded in Singapore more than halved in October-December from a year ago amid a sharp drop in crude oil prices.

However, Singapore Air suffered S$341 million in hedging losses, as the airline had purchased in advance part of the fuel requirements when fuel costs were higher.

The hedging losses may continue in the current quarter as the carrier hedged 44 per cent of its jet fuel requirements at an average cost of US$131 per barrel.

Quarterly revenue for the airline, which derives about half its sales from first-class and business travellers, was S$4.16 billion compared with S$4.27 billion a year ago.

Analysts said Singapore Air may have suffered less damage than rivals in the current economic downturn, but warned margins could fall sharply as businesses cut costs.

'We think passenger yield could fall sharply from here, negatively affecting the carrier's future profitability,' Morgan Stanley said in a client note ahead of the earnings.

Australia's Qantas Airways Ltd last week said its first-half profit fell by two-thirds as high fuel costs and a downturn in international travel pinched, and it raised A$500 million (US$323 million) by selling new shares.

SIA shares fell more than a fifth in October-December, while the benchmark Straits Times index lost 25 per cent. Shares in rival Cathay Pacific fell 33 per cent and Qantas lost 16 percent. -- REUTERS

http://www.businesstimes.com.sg/sub/...18354,00.html?

[9V-SIA]

Confirmation of fuel hedging losses...

And the reason for the continuing fuel surcharges

[KeithMEL]

In this rather difficult climate, would it be fair to suggest that any profit should be seen as positive news? Comparatively, at least.

[MAN Flyer]

Indeed it would, however that quarter includes the always busy Christmas/NY holiday period so I fear worse is to come. There are some horror stories of loads on some flights.

Looking at this:

The hedging losses may continue in the current quarter as the carrier hedged 44 per cent of its jet fuel requirements at an average cost of US$131 per barrel.

It would appear a new contact is in order:

I think they may be stuck with the surcharges as I was told, from a pretty good source, that they still have (or had) a certain amount of fuel ( maybe 50%) hedged at USD 140 a barrel. I can't remember how long he said that was for though.

As they were 9 dollars a barrel and a few percent out. You just can't get the staff these days...

[jhm]

Now, fuel surcharges don't go down because some fuel is hedged at a high price.

Before, fuel surcharges went up even though some fuel was hedged at a lower price.

[ycp81]

A SQ cabin crew friend told me that apart from the festive seasons, flights nowadays are so easy to work on (ie very empty flights) that it is gradually becoming a bit scary. On the recent SIN-MXP flt, there was only slightly more than 100pax with 0 in F. And the MXP-BCN-MXP flts only had 40 and 21 pax respectively. Scary...

[flyguy]

SQ hedging seems to be the main cause of the heavy losses - altho in some ways also due to the slump esp in its extra premium seats which SQ have its new planes like the A380 n 77W.
However on SQ fuel hedging - it seems to need some rethinking as it hedges at a very high average price of US$140 and for a longer period during the high prices. Other airlines seems to hedge less when the oil price shot up abobe US$130 and were buying more on the spot market than hedging for a longer period of 4 to 6 mths.
In any case, its done - but SQ should now not even have its surcharges or dropped it lower or altogether as most regional and other airlines have either reduced or done away with it - and SQ should just write off its high hedging losses - as did even air asia and stop imposing fuekl surcharges.
And SQ should at this time then hedge more as oil prices have come down by more than half and even avgas have come down substantially from the highs.

[MAN Flyer]

SQ hedging seems to be the main cause of the heavy losses - altho in some ways also due to the slump esp in its extra premium seats which SQ have its new planes like the A380 n 77W.
However on SQ fuel hedging - it seems to need some rethinking as it hedges at a very high average price of US$140 and for a longer period during the high prices. Other airlines seems to hedge less when the oil price shot up abobe US$130 and were buying more on the spot market than hedging for a longer period of 4 to 6 mths.
In any case, its done - but SQ should now not even have its surcharges or dropped it lower or altogether as most regional and other airlines have either reduced or done away with it - and SQ should just write off its high hedging losses - as did even air asia and stop imposing fuekl surcharges.
And SQ should at this time then hedge more as oil prices have come down by more than half and even avgas have come down substantially from the highs.

Thanks for pointing this out. I bet nobody has thought of that.

[EWR]

http://www.singaporeair.com/saa/en_U...se3QFY0809.pdf

[flyguy]

Jetstar Asia have announced today that they will scrap its fuel surcharges from all its flights. Seems that LCC carriers have much better fuel management and hedging practices than SQ - as actual case in point was that air asia in 2007 actually have a long forward hedged on its fuel price when oil was around $65 for 12 mths and hence even to mid 2008 that they were still relativbely unscathed n after that when prices were going higher then they hedged less and buys on the spot market n use surcharges - and hence they were doing better and when MAS suffers from bed hedging too.
Hence as SQ have hedged for longer term and today still uses the oil that they bought at a high average price that they still continue to have a higher fuel surcharge than most airlines and some who have stop surcharges.
Its time now that with the falling loads, that SQ move on and write-off its high hedged fuel prices and dropped its fuel surcharges and then to have more promotional prices for its premium F n J classes to boost up its fledging loads esp in premium classes - than to maintain empty premium cabins.

[huaiwei]

LCCs have a business model different from full-service carriers, and their survivability is based on one main criteria - price. Hence their greater willingness to take a greater lost in the hope of gaining market share by removing the surcharges, for these surcharges can account for a much higher ratio of the total LCC ticket price.

I would have thought the above is pretty elementary. Even if SQ were to adopt the exact fuel hedging strategy as AirAsia, there is no guarantee that the airline will remove fuel surcharges as quickly as AK. In fact, they very likely will not.