Singapore Airlines sees Q1 operating loss, signals headwinds for aviation sector

Singapore Airlines Group said it expects lower jet fuel consumption amid curtailed capacity due to the coronavirus pandemic, and expects to report a material operating loss for April-June quarter.

"The lower capacity projection reduces expected fuel consumption, causing more fuel hedges to be deemed ineffective under applicable financial reporting standards," Singapore Airlines Group said in its June operating results released July 15.

The company's 2020-21 financial year runs from April 2020 to March 2021, with additional results expected on July 29 for the first quarter ended June 30.

The group's overall passenger carriage plunged 99.5% year on year in June to 17,700, from 3.23 million a year earlier, as effects of the coronavirus rampaged on. The group's passenger capacity -- measured in available seat kilometers -- was also down by 95.1% year on year.

Passengers carried by the group's flagship carrier, Singapore Airlines, tumbled 99.3% year on year to 13,900 from 1.88 million passengers in June 2019. The flagship carrier registered a 94% fall in flight capacity, adding that only a skeletal network was in operation, connecting Singapore to 24 metro cities in the month.

Meanwhile, the airline group further highlighted that its regional arm SilkAir only operated flights to Chongqing, Kuala Lumpur, and Medan in June, while its budget-carrier Scoot, ceased operations to West Asia and Europe in the month.

"The SIA Group will remain nimble and be ready to scale up capacity to match demand as international routes reopen and travel sentiments improve," the group said.

Earlier in July, the International Air Transport Association reported that global flight passenger demand contracted 91% year on year in May and cautioned that the crisis remained "far from over" despite signs of containment in some countries.

S&P Global Platts assessed outright FOB Singapore jet fuel/kerosene price at $43.88 at the 0830 GMT Asian close on July 15. This marked a $36.40/b, or 45.34%, decline since the beginning of the year, when it stood at $80.28/b on January 2.

Industry sources noted that in spite of an uptick in domestic and international flight resumptions since early June, regional refineries will unlikely raise jet fuel output as the aviation sector recovery is "still at a fragile state".

"Regrade is still weak now, so there is not much incentive to hike jet output [for now]," a Singapore-based refining source said.

The front month August regrade swap -- which measures the relative premium or discount that jet fuel has over gasoil -- was assessed at minus $5.18/b at the 0830 GMT Asian close July 15. As of 0300 GMT July 16 however, brokers pegged the same spread narrower at minus $5.05/b.

In the derivatives market, the front month August/September timespread registered at minus 57 cents/b July 15. The spread had previously narrowed to minus 46 cents on June 22, but has widened and trended lower since.

"I would say jet [fuel price] is never going to be recovered within this year until a vaccine is found, now that summer has arrived and yet the COVID-19 cases are not contained in most countries. Flying still remains only when [it is] very necessary," the source added.