Monday, 18 May 2020

SIA FY Results: What caused SIA to loss $732m in the 4th quarter?

SIA FY 2019/2020 
SIA reported its first Full Year loss of $212 million. This was mainly due to a loss of $732 million incurred in the 4th quarter (Jan to Mar 20). As expected, there is no dividends declared this time.

SIA Net Asset Value (NAV) is now at $7.86, dropping by more than $3 compared to a year ago. This value will change after the rights issue.

This means that SIA is currently trading at a Price/NAV ratio of less than 0.50! SIA is in a unique position. While other airlines caters to both domestic and international travels, SIA caters to only international travels. When the number of COVID19 cases decrease in other countries, airlines typically are allowed to start operating their domestic flights which helps them to generate some form of revenue. SIA has to depend on our government negotiation with other countries to start international flights between the countries. Hence, its recovery will be slightly slower. 

Lets take a look at what caused such a big loss in the 4th quarter:
From: SIA Press Release
SIA made a loss in the 4th quarter mainly because of (i) fuel hedging loss of $198 million and (ii) fuel hedging ineffectiveness of $710 million. 

Fuel hedging loss occurred because fuel prices plunged in the first quarter. The demand for oil dropped when countries embarked on a lockdown to flatten the COVID19 curve. This was coupled with an oversupply of oil with price wars happening resulting in oil futures contract becoming negative in an unprecedented event. 

Fuel Hedging ineffectiveness happened because SIA over hedged. This was due to the capacity cuts made resulting in a lesser fuel consumption.

While SIA had shared that they expect more fuel hedge in future quarters, they have not share whether they expect fuel hedging ineffectiveness. There were no details on the average duration of the contracts so it is hard to guage.

What about staff cost? 
From: SIA Consolidated P&L
SIA managed to reduce staff cost by more than 60% this quarter to post just $273.6 million. They shared that it was due to the various support schemes given by the government. It is noted that in March, they have also undertaken wage cuts for its management team and compulsory no-pay leave for employees. I hope that they will look after their staff especially those on NPL even during such crisis.

There are other cost that would be incurred during this period like aircraft maintenance, landing, parking, handling costs. But my biggest concern is on fuel hedging ineffectiveness. SIA could have provided some details on this so that investors can make an informed decision especially those who are wondering whether to exercise the rights issue.


  1. I bought SIA stocks more than 10 years ago. Since then, fuel hedging losses seemed to be a recurring issue year after year. Am I the only one who notices it?

    1. Hi Investor,

      Wow, 10 years ago! That was the time when they dangled out big sum of dividends.

      They have experienced fuel hedging gains and losses over the years. But I have not done any compilation to see whether its a net gain or net loss over the years or compared them with other airlines.

  2. Some airlines don't hedge while some hedge for shorter timeframe and at lower percentages. Regardless of fuel hedging loss or gain, the fact remains that the share price never went back to the same level. I am still at a paper lost despite all the years of dividend.

    1. Hi Investor, I am sorry to hear that. I have some friends who bought because of the dividends issued in 2010 and they are still at an unrealised loss too. You need to decided if you are going to subscribe to the rights or do nothing and let your shares be diluted (details in previous post).

      I have also suffered from a loss in SIA. As stated in my 1 Apr post, I cut off SIA. I am lucky to have cut it off before the rights issue was announced.

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