SIA cuts cash burn to S$100-150m a month; sees robust bookings for travel bubble

NATIONAL carrierC6L : C6L 0% has managed to slash its monthly cash burn rate to the range of S$100-150 million, from S$350 million a year ago when the pandemic struck and decimated air travel.

But its fuel hedges might still move the needle in how much SIA would burn, the airline group disclosed at a results briefing for the media and analysts on Thursday.

The carrier had reported on Wednesday a record net loss of S$4.27 billion for FY2021 ended March, being the "toughest year in its history".

Though it noted that international air travel remains severely constrained, SIA has observed strong underlying demand as shown by the bookings for flights designated for the quarantine-free Singapore-Hong Kong air travel bubble.

Senior vice-president of finance Stephen Barnes shared that the group's operating cash burn rate a year ago was S$350 million. This was reduced to about S$300 million by its half-year ended September 2020, and further cut to S$250 million by February. Presently, it is in the region of S$100-150 million.

However, he flagged that the carrier's fuel hedges - committed before the pandemic struck - could impact cash flow.

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"A cash impact arises when the hedge actually matures, so we have to settle with our counterparts. That's the point at which we either will pay away or receive cash from upon settlement ... It is one of the things that can move the needle in our month-to-month operating cash flow," Mr Barnes elaborated.

SIA has hedged its fuel consumption needs up to 59 per cent until end-March 2025 at prices at about US$74 per barrel for jet fuel, or US$58 per barrel in Brent crude oil hedges.

In spite of a lower cash burn rate that is expected to stay stable, the mainboard-listed airline group announced on Wednesday that it is issuing an additional S$6.2 billion worth of mandatory convertible bonds in view of the unclear recovery trajectory.

Its chief executive Goh Choon Phong is sanguine about travel demand when borders reopen, encouraged by the bookings for the Singapore-Hong Kong air travel bubble.

"As you know, once it was announced, we actually had flights being filled up months ahead," Mr Goh said.

But he also expects the recovery for air travel would not be smooth sailing as the pandemic rages on, as seen in the suspension of the travel bubble last November and earlier this week due to flare-ups in infections in both cities.

Meanwhile, SIA will ride on a strong freight market, for which Mr Goh said SIA has left "no stone unturned" in maximising its fleet to meet demand. But whether it will lease freighters or convert passenger jets to freighters to boost its capacity, Mr Goh would only say SIA will continue to review its fleet requirements.

The carrier will not be using the S$6.2 billion proceeds from the mandatory convertible bond issuance on mergers and acquisitions or overseas investments, when asked if it intends to undertake such opportunities as bidding for the debt-ridden Air India.

It has ruled out further staff retrenchments for now, after laying off about 2,000 employees last year in an austerity drive to rein in costs.

The counter rose 1.28 per cent to S$4.76 when market closed on Thursday, making it one of the top gainers on the blue-chip barometer Straits Times Index.