However, airfare and yield increases certainly do not cover the increase in fuel costs, which are in yet another volatile period amid the fighting between the US and Iran. With elevated oil prices, the airline’s hedging skills once again deserve closer examination.
On the sidelines of SIA’s results briefing, JoAnn Tan, CFO of SIA, says that the group’s hedging is likely to use North Sea Brent to hedge as it is more liquid than MOPS (Mean of Platts Singapore).
On May 12, North Sea Brent shot up to as high as US$138 ($176.4) per barrel, but is seen to ease to around US$106 in May and June, according to estimates by the US Energy Information Administration, or EIA. “As oil production in the Middle East rises, we expect crude oil prices to fall, dropping to an average of US$89 [$176] per barrel in 4Q2026 and US$79 per barrel in 2027.”
Programmatic fuel hedging
Tan points out that the airline’s programmatic fuel hedging is an integral part of SIA’s well-established risk management framework. “This is designed to provide some protection against a sudden and significant increase in debt fuel prices. It has helped us to attain a certain level of predictability in relation to our fuel cost, which is the largest operation, but our hedging does not negate the full impact of any high fuel price,” Tan explains.
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Assuming its average cost of jet fuel is likely to be 50% higher in FY2027, and fuel cost could rise by as much as $2.5 billion in FY2027, and assuming that revenue grows by 8% based on 2HFY2026 revenue, SIA’s operating profit is likely to be around $2 billion.
However, SIA’s bottom line is closely tied to its 25% associate Air India, where net losses are likely to be equity-accounted. In FY2027, SIA reported a loss of $828 million for an associate company. If Air India’s losses are pared, SIA could manage an unchanged net profit of around $1.12 billion. If Air India’s net losses are equivalent to FY2026’s, SIAt’s net profit would likely dip below $1 billion.
UOB Kay Hian’s Roy Chen has calculated a 19% y-o-y decline in SIA’s net profit to $964 million. “While management highlighted that SIA’s airfare hikes will not fully offset the fuel cost pressure, we still see a good chance that rate hikes, together with SIA’s fuel hedging position, will sustain SIA’s operating profit at a y-o-y comparable level.
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“On the other hand, losses incurred by Air India are likely to widen h-o-h in 1HFY2027 due to the absence of fuel hedging. As a result, our updated FY2027 net profit forecast still implies a 19% y-o-y decline,” adds Chen.
Bloomberg Intelligence is suggesting a “downside scenario” in which the Iran conflict persists through the fiscal first half and fuel costs rise to about 35% of SIA’s revenue, which could drive operating profit down by more than two-thirds.
“Pressure from fuel will be partly offset by hedging coverage exceeding 45%, including over 30% via jet fuel-linked MOPS, alongside potential revenue growth of about 12% as cost increases are partially passed through to travellers.
“In a shorter conflict scenario, where tensions ease by 2Q2026, operating profit decline could be capped below 25%, supported by high single-digit revenue growth and stronger yields,” adds Bloomberg Intelligence.
Over at OCBC Group Research, equity analyst Ada Lim is forecasting a net profit of just $423.9 million. She points to low earnings visibility. “There is a high level of uncertainty around our projections,” warns Lim.
“Much depends on the duration of the closure of the Strait of Hormuz, and even if there are clear signs of de-escalation, it will take time for jet fuel prices to normalise, given that it is a refined product. In the worst-case scenario where there is an economic downturn, there may also be second-order effects on demand which are challenging to quantify,” she cautions.
For Raymond Yap of CGS International, SIA’s dividends were higher than what he expected, “despite the drag from Air India’s losses”. SIA declared an ordinary dividend of 22 cents for 2HFY2026, and a special dividend of seven cents.
In 1H2026, SIA declared a dividend of 5 cents and a special dividend of 3 cents. The full-year dividend represented a payout ratio of almost 100%. According to CFO Tan, SIA does not have a dividend policy. However, the board has committed to an annual capital return of 10 cents for three years.
“We have revised up our regular dividend per share to 18 cents for FY2027 from 10 cents and to 30 cents for FY2028 from 22 cents using a 70% payout as a guide, and tagging on 10 cents special dividend per share (DPS) for both years over and above the regular dividend,” Yap says. The historic DPS of 37 cents translates into a dividend yield of 5.77% based on the share price as at May 18.
