Weak SGD threatens SIA’s savings from ongoing oil price rout

The US$ has gained 6% on the SGD since August.

The national carrier has been grappling with compressed yields and cutthroat competition of late, but SIA is bound to get a reprieve as the oil price rout continues.

According to DBS, with jet fuel currently at US$75 per barrel versus nearly US$120 per barrel just in August, the group will reap substantial benefits from lower fuel costs.

“However, the upside will not be immediately apparent given that the US$ has strengthened by about 6% against the S$ since August and that SIA has hedged over 60% of its fuel requirements until March 2015 at c. US$116/bbl,” cautioned DBS.

Here’s more from DBS: 

FY16F earnings lifted by 30%. We now assume jet fuel price to average US$95/bbl in FY16 vs US$125/bbl
previously, but cost savings would be partially offset by stronger USD/SGD rate and lower yield assumptions. 

If jet fuel prices remain persistently well below US$95/bbl, most of the cost savings could likely to be passed on to consumers in the form of lower ticket prices.

Meanwhile, the Group’s balance sheet is projected to remain very strong with a net cash position of c. S$4bn.