Insight & Analysis

Singapore Airlines keeps a firm eye on liquidity as industry recovery remains uncertain

Published: Apr 2022

The world is emerging from the ravages of the pandemic but treasury strategy at Singapore Airlines remains focused on liquidity and a strong balance sheet, says Divisional Vice President of Financial Services, Balagopal Kunduvara, in an interview with Treasury Today. “For an airline, liquidity is essential,” he says. Despite the end of the pandemic now coming into sight, passenger loads and demand for international travel continues to lag and some borders remain closed. Only when the recovery is well under way, will treasury switch its focus to medium and longer-term priorities around the capital structure. “As long as uncertainty remains, we will continue to have liquidity as a primary focus,” he said.

Macro sharpened details fly eyes

Reflecting on whether the company will raise more money in the near future, he said although treasury has no need for additional liquidity at the moment strategy will remain opportunistic. Singapore Airlines was one of the first airlines to look at fundraising when the pandemic hit, structuring a rights issue in a process that gave confidence to the firm’s suppliers and partners. Today Kunduvara observes continued bank appetite for airlines, although he did reflect that some banks have stayed away from the sector because of uncertainty in the industry.

Hedging strategy

The sharp fall in the price of oil at the height of the pandemic coupled with the drop off in demand led treasury to rethink the company’s fuel hedging programme. Pre-Covid, Singapore Airlines ran a five-year fuel hedging book but decided to “take a pause” when uncertainty hit its fuel consumption and passenger demand projections, using the opportunity to recalibrate its books. Kunduvara has closed out hedging positions, and still benefits from a hedge book that extends over the next five quarters where it is hedged between 30-40% at $60 a barrel. “We are in a very good position compared to prevailing prices,” he says. “We now have some breathing space, but believe in the benefits of hedging and look at it as a useful tool.”

The conversation also touched on how the company is exploring alternatives to credit card payments in light of hefty payment processing fees. Singapore Airlines has a dedicated e-commerce team that actively explores new payment methods. Kunduvara noted how treasury is supportive of alternatives to credit card payments, watching as the market evolves. “It’s a cost we need to be mindful of, margins are important and initiatives that improves sales and operations are helpful.”

At some point, treasury will align long-term financing to the company’s sustainability road map but Kunduvara outlined unknowns ahead. His priority is that sustainable targets are adopted at an organisation level and noted that treasury will also play a future role financing innovation like sustainable aviation fuels.

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