With the Covid-19 pandemic crippling air travel worldwide, Singapore Airlines (SIA) has announced its first annual net loss since its incorporation in 1972.
While the airline may have had losses in individual quarters in the past, it has always remained profitable on an annual basis for the whole of its 48-year history. Until now.
Like most airlines worldwide, SIA had to significantly scale back operations due to the Covid-19 outbreak, cutting 96 per cent of its capacity in March 2020.
SIA made a S$683 million profit the previous year
The SIA Group reported a net loss of S$212 million for the financial year 2019/2020 ending Mar. 31, 2020, compared to a S$683 million profit in the previous financial year.
The Group operating profit fell more than S$1 billion to S$59 million during the same period.
In the fourth quarter alone, the SIA Group suffered a net loss of S$732 million, compared to a net profit of S$203 million in the same quarter the previous year.
The airline suffered huge fuel hedging losses
According to SIA, the airline also suffered huge fuel hedging losses, due to the plunging of fuel prices towards the end of the quarter.
Global demand for oil slumped due to the Covid-19 pandemic and a price war between Saudi Arabia and Russia, and fuel prices plunged into the negative for the first time in history.
In addition, the capacity cuts made by SIA also led to lower fuel consumption than previously anticipated, based on normal operating conditions.
In total, the SIA Group recorded losses of S$710 million on surplus hedges, which far surpassed the savings in other expenditures.
"The drop in revenue, and fuel hedging losses could not be compensated by the savings in non-fuel expenditure from capacity cuts, government support schemes, and other cost-cutting measures," said SIA.
Airline will maintain minimum flight connectivity
According to SIA, prospects for a recovery in international air travel in the months ahead depend on the easing of border controls and travel restrictions, and there is little visibility on the timing of a possible recovery at this point.
However, the airline said that they will maintain a minimum flight connectivity within its network during the Covid-19 period, while ensuring the flexibility to scale up capacity when necessary, when faced with an uptick in demand.
As fuel prices are likely to remain weak in the near term, the SIA Group said that they are expecting further fuel hedging losses, and noted that they will keep a close watch on market developments before entering additional hedges.
SIA will also set up an internal task force to review their operations, in order to ensure that the airline is ready to ramp up services when air travel recovers.
"This includes any modifications to our inflight products and end-to-end service delivery to provide additional health and safety assurances to our customers and crew", said SIA.
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Top image via SIA.