Singapore Airlines Swings to a Loss as Fuel Costs Explode

• The Singapore Airlines (SIA) Group currently operates a dual-brand model: the premium, full-service SIA carrier and low-cost carrier Scoot, complemented by a 25.1% strategic stake in the Air India Group that anchors its multi-hub strategy. The group's passenger network covers 137 destinations in 36 countries and territories, with SIA serving 78 and Scoot 85 (59 of which are exclusive to Scoot). Its cargo network spans 139 destinations in the same 36 countries and territories.

• For the first quarter of FY2026/27 (1QFY2026/27), total revenue for the quarter rose 19.3% YoY to a record of S$5.7 billion, from S$4.8 billion in 1QFY2025/26. This was underpinned by strong demand for air travel, which lifted passenger revenue up by 18.6% YoY to S$4.6 billion, and passenger yields up by 12.0% YoY to S$0.112 per revenue passenger-kilometer.

• Group expenditure rose 27.9% to S$5.7 billion, mainly due to a S$991 million (+78.5%) increase in net fuel cost to S$2.2 billion. Jet fuel prices, which are typically priced on a lagged basis, experienced a surge arising from the Middle East conflict. As a result, fuel cost before hedging more than doubled (+118.7%) this quarter on elevated fuel prices (+S$1.5 billion) and higher consumption (+S$42 million). Non-fuel expenditure rose 7.4% driven by overall capacity expansion and inflation pressure. Given the sharp rise in fuel costs, the group recorded an operating profit of S$106 million, down 73.8% from a year ago.

• The group reported a net loss of S$76 million, a sharp decline from the net profit of S$186 million in the same quarter last year. This was mainly driven by the S$299 million drop in operating profit, as well as the S$42 million increase in the share of losses (non-operating) from Air India, partially offset by a lower tax expense.

• The group carried a total of 10.9 million passengers, a 6.3% increase from a year ago. SIA carried 7.1 million passengers (+4.1% YoY), while Scoot carried 3.8 million passengers (+10.8% YoY). However, SIA's passenger load factor (PLF) fell 0.4 percentage points to 86.2%, below SIA's breakeven PLF of 87.9%. Similarly, Scoot's PLF dipped 0.9 percentage points to 90.6%, below the breakeven PLF of 100.0%. This matters because falling below breakeven PLF means passenger revenue is no longer covering passenger operating costs at prevailing yields. At the group level, PLF slipped 0.5 percentage points to 87.1%, as capacity expansions of 5.9% ran ahead of traffic growth of 5.3%.

• Cargo performed even better. As cargo yield increased by 28.1% and cargo load factor (CLF) grew 1.9 percentage points to 58.8%, cargo revenue jumped 33.5% to S$708 million. Management noted that demand has shown resilience across most key verticals, supported by semiconductor and data-center related movements. Nonetheless, cargo unit costs also ticked up by 31.8%, suggesting fuel-cost pressure remained apparent.

• Total debt edged up to S$10.7 billion, from S$10.6 billion, mainly due to the issuance of an offshore CNY1.5 billion five-year fixed-rate bond, partially offset by debt repayments during the quarter. Group shareholders' equity slipped from S$417.3 billion to S$16.6 billion. As a result, the debt-to-equity ratio rose from 0.62x to 0.65x.

• Cash and bank balances grew to S$9.1 billion, up 17.4% QoQ from S$7.9 billion, driven by net cash generated from operations, proceeds from the maturity of fixed deposits, and bond issuance proceeds. The group also holds S$1.4 billion in fixed deposits placed for tenors longer than 12 months, as well as access to S$3.2 billion in committed lines of credit, all of which remain undrawn.

• On a net basis, total debt less cash and bank balances work out to roughly S$1.6 billion. Against quarterly EBITDA of S$702.4 million (annualised: ~S$2.8 billion), this implies a net debt-to-EBITDA (based on run-rate) of roughly 0.6x. On a trailing-twelve-months basis, TTM EBITDA is S$4.2 billion, implying net debt-to-EBITDA of just 0.4x.

• SIA and Scoot expanded their network this quarter with new routes to Belitung, Pontianak, and Hangzhou, alongside increased capacity to Europe, New Zealand, and Australia. The group also deepened partnerships with Malaysia Airlines, Air China, and Air India to extend its reach, while continuing to invest in premium product through new lounges and an upcoming in-flight experience refresh. These moves should help support revenue and yields even as fuel costs weigh on near-term profitability.

• Overall, SIA's credit profile remains stable despite the softer quarter, even as the fuel shock has temporarily dented profitability. Looking ahead, jet fuel costs remain the key swing factor to watch for SIA's earnings. With prices still elevated relative to pre-conflict levels and the Middle East situation unresolved, further volatility in fuel costs is likely to keep weighing on margins in the coming quarters - this will be an important metric to monitor going forward.

• SIA's SGD bonds yield between 2.28% and 2.60%, which works out to roughly a 20bps pick-up over comparable Singapore government bonds. Its bonds were compared against similar-tenor issues from government-linked names - CapitaLand Ascendas REIT (AREIT, rated A3 by Moody's) and the Land Transport Authority (LTA), a Singapore statutory board. Against AREIT 2.650% 26Aug2030 (A3-rated), the SIASP 2030 bond yields 2.28%, just 1bp more than AREIT's 2.27%, suggesting the market may see SIA as a solid investment-grade issuer. Against LTA (LTAZSP 3.510% 18Sep2030), a quasi-sovereign statutory board, SIA yields 17bps higher, reflecting LTA's stronger government backing. At the longer end, SIA's 2036 bond yields 2.60%, almost flat to the AREIT 3.730% 29May2034 which yields 2.61% (-1bp).

• On the other hand, SIA's USD bonds’ yield-to-worst ranges around 4.85%–5.25%, offering a pick-up of approximately 45–60bps over comparable US Treasuries. The SIASP 3.375% 19Jan2029 bond yields 4.85%, lower than both Delta (DAL 3.750% 28Oct2029, rated BBB- / BBB- / Baa2) at 5.06%, and United (UAL 4.875% 01Mar2029, rated BB+/BB+/Ba2) at 5.53% (-21bps and -68bps respectively). The SIASP 5.250% 21Mar2034 bond, yielding 5.25%, is also well below Southwest's LUV 5.250% 15Nov2035 bond (rated BBB/BBB+/Baa2) at 6.04%. The relatively tight spreads versus US Treasuries, and lower yields versus bonds by airline peers, suggest that SIA’s solid credit fundamentals are already largely reflected in its bond prices.

• To summarise, we think SIA’s bonds generally look fairly priced. These may appeal to investors seeking a Singapore government-linked issuer with a solid balance sheet and liquidity profile.

Table 1: SGD Bond Comparison

Table 2: USD Bond Comparison