SIA braces for turbulent 2016 as fuel hedging losses mount

Would losses tone down come 2017?

Lower fuel prices may sound like good news, but it isn’t so for Singapore’s flag carrier, as the airline is expected to post higher fuel fuel hedging losses in the second half of this year.

According to analysts from UOB Kay Hian, however, fuel hedging losses are projected to fall sharply in 2017.

“We have assumed an average of US$70/bbl in fuel hedges and 40% of fuel requirements hedged for FY17. This should lead to about S$950m decline in fuel hedging losses in FY17,” UOB Kay Hian said.

Meanwhile, UOB Kay Hian adds that Singapore Airlines (SIA) is unlikely to have a steep decline in yields barring a severe economic slowdown.

“We believe that much of the decline in pax yields in the past four quarters was a response to the steep increase in fuel price volatility and aggressive price discounting by competitors,” UOB Kay Hian said.