Singapore Airlines is suffering a catastrophic loss of $2.5 billion. This is the result of a triple whammy. See the details here.

The first whammy is the loss of revenue caused by the unprecedented suspension of air flights during the corona virus pandemic. SIA stopped 96% of it's flights. The airline has to pay the wages of workers, less those placed on no pay leave or terminated, and for the depreciation of the planes.

This loss is suffered by all airlines and by other business in the tourism industry. It is unexpected and unavoidable. We cannot blame SIA for the massive loss due to this first whammy.

The second whammy is the high price of the fuel under the forward fuel contacts. The contracted price is perhaps three times or more of the current price.

The third whammy is that SIA had contacted to buy far more fuel than the can really use under the current circumstance.

Can the excess fuel be stored? I hope so. Otherwise, it will be wasted. It could amount to tens or hundreds of million dollars.

If SIA did not have the forward contracts, it does not need to pay for the fuel that is not required for the grounded planes

It seems that SIA hedges the fuel cost up to six years forward, while other airline hedges for two years.

In both cases, the strategy is unwise. It is reckless.

A business should only hedge its variable cost based on the contracted forward sales made at fixed prices.

An airline sells its tickets in advance, so it needs to hedge for the advanced sales. I estimate that the sales would probably be made, on average, two or three months ahead.

It would be prudent to hedge three months ahead. Maybe six months can be justified. A longer period is speculative and unwise. Six years is reckless gambling.

Who should be held accountable for this massive loss? The top management of SIA? The board of directors of SIA? The top management of Temasek Holdings for failure in oversight?

Will the tax payers of Singapore bail out SIA for this massive loss?

Tan Kin Lian

Vote - are you shocked by this massive loss?