Singapore Air extends jet fuel hedging as OPEC cuts sway oil prices

Singapore Airlines Ltd., Southeast Asia’s biggest carrier, extended some of its fuel-hedging contracts to as long as five years, betting on an upswing in crude oil prices amid OPEC production cuts and renewed tensions between the US and Iran.

The marquee airline, which reported a 36 percent drop in profit for the three months through December, said Tuesday that it has entered into longer-dated Brent hedges with maturity extending to 2022. Earlier, the company used to hedge only for a maximum period of 24 months, according to spokesman Nicholas Ionides.

“Clearly they are taking a view that oil prices will gradually go up,” said Mohshin Aziz, an analyst at Maybank Investment Bank Bhd. in Kuala Lumpur. “It’s out of their norm as they usually do it 18 months forward. I don’t think it’s a bad move.”

Singapore Air, which is battling overcapacity and aggressive pricing by budget airlines in the region, is seeking to cut costs as passenger yields – a key measure of profitability in the industry – continue to be under stress. Jet fuel accounted for 26 percent of the company’s total expenditure last quarter, making it the single biggest cost.

Brent crude, trading at $54.53 a barrel, has gained about 8 percent since major oil producing nations agreed in December to trim output, while policies of US President Donald Trump have fueled uncertainty over prices.

Shares of the airline rose as much as 2.2 percent to S$9.93 in Singapore, their biggest intraday gain in more than seven months. They have declined 11 percent in the past year.

“Fuel prices have trended upward since the last quarter and are expected to remain volatile as uncertainty lingers around global oil production,” Singapore Air said in a statement on Tuesday. “The group regularly reviews and adapts its fuel hedging policy to manage volatility in fuel prices.”

For the current quarter, the airline said it has hedged about 37 percent of its jet fuel requirements in Singapore Jet Kerosene at a weighted average price of $67 a barrel. Its longer-dated Brent contracts extend to 2022, covering between 33 percent and 39 percent of its projected annual consumption at an average $53 to $59 a barrel. (Bloomberg)