In May this year, Singapore Airlines (SIA) reported its first annual net loss in its 48-year history amidst the COVID-19 pandemic (‘Singapore Airlines posts first annual net loss in 48-year history after COVID-19 cripples demand‘, 14 May).
SIA reported a net loss of S$212 million for the 12 months ending 31 Mar 2020. In the 4th quarter alone (Jan – Mar 2020), it lost S$732 million. In part, SIA’s losses also stemmed from the US$638 million in charges it took on failed oil hedges.
According to Wall Street Journal (WSJ), U.S. carriers have in general cut back on these financial bets in recent years, after being wrong-footed by an earlier plunge in oil prices about five years ago. Many airlines instead use customer fuel surcharges as a way to adapt to changing oil prices.
But SIA continues to use oil hedging strategy. Not only that, SIA uses an “unusually farsighted approach” to manage its fuel costs, said WSJ. In recent times, SIA has hedged some of its fuel costs up to five years out, while others in the industry will generally go with a 1 to 2-year horizon. Of the 33 listed global airlines with fuel-hedging policies, SIA was by far the longest, according to Morgan Stanley research last year.
In fact in Jan this year, SIA said it had hedged the bulk of its expected fuel costs out to March 2025. For the four years from April 2021, it had hedged more than half of its fuel needs based on Brent crude at US$58 to US$62 a barrel. But since the COVID-19 crisis struck earlier this year, Brent crude prices have dived below US$50.
If COVID-19 continues on with oil prices languishing, SIA will surely continue to suffer quarterly losses over its fuel bets, perhaps all the way to 2024, the year indicated by IATA that travel industry will recover from the pandemic at the minimum. Indeed, SIA already warned shareholders that it expects to see further hedging losses.
Massive retrenchment from SIA
Last month, SIA Group announced its decision to lay-off 4,300 positions across its airlines – Singapore Airlines, SilkAir and Scoot – as losses mounted (‘Massive layoffs at Singapore Airlines‘, 10 Sep).
Following the announcement, Transport Minister Ong Ye Kung took to his Facebook noting that the Government has rolled out support measures – such as the Jobs Support Scheme – to defray business costs and protect jobs, with the aviation sector receiving the “strongest support”. He added that retrenchment at SIA “has unfortunately become inevitable.”
Still, Ong continues to believe that the workers’ skills would be “much needed elsewhere” and reassured that the Government “will do all we can” to support the retrenched workers. He also stressed that the Government will continue to restore air travel in a safe manner and revive the Singapore’s air hub status.
In the press release with regard to the massive retrenchment initiated by SIA, SIA CEO Goh Choon Phong blamed the pandemic, “When the battle against Covid-19 began early this year, none of us could have predicted its devastating impact on the global aviation industry.”
He said his priority was to ensure survival and save as many jobs as possible. “Given that the road to recovery will be long and fraught with uncertainty, we have to unfortunately implement involuntary staff reduction measures,” he said.
“Having to let go of our valuable and dedicated people is the hardest and most agonizing decision that I have had to make in my 30 years with SIA. This is not a reflection of the strengths and capabilities of those who will be affected, but the result of an unprecedented global crisis that has engulfed the airline industry.”
SIA CEO Goh receives S$4.2m in remuneration
In any case, the SIA annual report for FY19/20 was finally released this month. In its report, it was disclosed that SIA CEO Goh received a total of S$4,223,274 in remuneration for the last financial year ending on 31 Mar.
Despite SIA reporting its first net loss of S$212 million in its 48-year history for the last financial year, Goh continues to receive bonuses of S$1,046,967 and shares valued S$1,643,940.
His total remuneration was S$5,500,463 in the previous financial year (FY18/19) (‘SIA CEO announces 15% pay cut for himself; he earns $1.4m in salary with total package $5.5m last FY‘).