Rajan Wilcox
Singapore Airlines, one of the largest carriers in the Asia-Pacific region, spent $987 million on fuel in Q2 of 2021. The airline has warned that rising competition and higher fuel costs will affect revenues and profitability. The cost of jet fuel has been increasing significantly over the last few years, and airlines have been passing on some of these costs to consumers through fuel surcharges. Singapore Airlines' jet fuel consumption in the fiscal year 2023/2024 was about 1.6 billion gallons, an increase from previous years. The airline has also taken steps towards sustainability by ordering sustainable aviation fuel from Neste, aiming for a minimum of 5% sustainable aviation fuel in their total fuel uplift by 2030.
| Characteristics | Values |
|---|---|
| Jet fuel consumption in 2023/2024 | 1.6 billion gallons |
| Jet fuel expenditure in Q2 2021 | $987 million |
| Total expenditure in 2023/2024 | 16.29 billion Singapore dollars |
| Use of sustainable aviation fuel | Signed an agreement for the purchase of 1,000 tons of Neste MY Sustainable Aviation Fuel |
| Fuel surcharges | Implemented to pass on some of the fuel costs to consumers |
| Fuel hedging | Used to protect from extreme changes in jet fuel costs |
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What You'll Learn
Singapore Airlines spent $987 million on fuel in Q2 2021
In Q2 of 2021, Singapore Airlines spent $987 million on fuel. This was a significant expense for the airline, especially considering the high taxes on jet fuel in the Asia-Pacific region, where Singapore Airlines is a large carrier.
The cost of jet fuel has been increasing over the years, with a slight reduction in 2023. However, the increase in airfares across the globe indicated that rising fuel costs were being passed on to customers. Oil prices have remained volatile, and fuel prices vary across the world. The average crude oil price in 2023 was $82.5 per barrel, with a crack spread of $30 per barrel, reflecting tight supply amid recovering demand.
Singapore Airlines' fuel expenditure in Q2 2021 accounted for around 28.8% of its half-yearly expenditure, a notable increase from the rest of the year. The airline has employed fuel hedging to protect itself from extreme changes in jet fuel costs. In FY2022/2023, its fuel hedging gain was -$748.9 million, improving to -$390.9 million in FY2023/2024.
The airline's total fuel costs for FY2023/2024 were $5 billion, a reduction from the previous financial year's $5.2 billion. This decrease in fuel costs contributed to the airline's overall financial health and ability to navigate the challenging landscape of fluctuating fuel prices and supply constraints.
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Fuel surcharges pass fuel costs to consumers
Fuel surcharges are extra fees charged by companies to help cover the constantly fluctuating cost of fuel. They are not intended to cover the complete cost of fuel but to make price increases more manageable. In the context of airlines, fuel surcharges are used to pass on some of the fuel-related costs to consumers.
Airlines have their own systems for determining the fuel surcharge they will apply to customers. Most carriers base their fees on the U.S. Energy Information Administration's reports for the National U.S. Average On-Highway Diesel Fuel Price. New averages are released weekly, and carriers determine baseline ranges for fuel costs that will trigger different surcharges. Generally, the more expensive fuel becomes, the higher the fuel surcharge. The surcharge is added to the invoice, and clients are required to pay it along with the rest of the applicable fees.
For example, a carrier might charge a 10.25% fuel surcharge based on the load price when fuel costs are within 10 cents of the baseline price. However, after fuel prices exceed that threshold, the surcharge increases to 10.5%. The higher the fuel prices, the higher the surcharge rate.
In the case of Singapore Airlines, the group's total expenditure in the fiscal year 2023/2024 was about 16.29 billion Singapore dollars. While it is unclear what proportion of this was jet fuel expenditure, the airline spent SG$1.38 billion ($987 million) on fuel in Q2 of 2021. As of the fiscal year 2023/2024, the jet fuel consumption of the Singapore Airlines Group amounted to about 1.6 billion gallons, reflecting an increase in fuel consumption due to the recovery in air travel.
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Fuel hedging protects airlines from extreme price changes
Fuel is one of the largest expenses for airlines, with jet fuel accounting for 20% to 40% of an airline's operating expenses. The cost of jet fuel has been rising in recent years, and prices have also become very volatile, largely due to the geopolitical situation globally. This volatility in jet fuel prices squeezes airline profits, and it is almost impossible to pass on this dramatic rise to customers through increased ticket prices, at least in the short term.
Fuel hedging is a strategy airlines can use to protect themselves from extreme price changes. It helps airlines stabilise costs and protect against price hikes, potentially saving them billions. Airlines commonly hedge their fuel costs by buying or selling the expected future price of oil through a range of derivatives, thus protecting them from rising prices. This is done by purchasing forward contracts, where two parties agree to buy or sell a certain quantity of a commodity at a specified price on a future date. This locks in a price ahead of time, protecting the airline from future price rises.
Airlines like Southwest and Air France-KLM have saved around $1 billion each through fuel hedging as fuel prices surged. In 2022, Air France-KLM had around 72% of its fuel costs for the first quarter dropping to 63% for the second quarter hedged, protecting them from a more than 75% year-on-year price hike.
However, fuel hedging can also be risky. If fuel prices drop, airlines could end up paying more than their competitors. Additionally, some airlines could be hedged above the current price of fuel, resulting in higher costs.
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Singapore Airlines' total expenditure in 2023/2024 was $16.29 billion
The cost of jet fuel has been increasing over the years, and while 2023 saw a slight reduction, the average crude oil price was still $82.5 per barrel, with high crack spreads of $30 per barrel. Singapore Airlines spent $987 million on fuel in Q2 of 2021, and while the exact figures for 2023/24 are not available, the total expenditure indicates a significant cost.
The airline has also been investing in sustainable aviation fuel (SAF), with a recent agreement to purchase 1,000 tons of Neste MY Sustainable Aviation Fuel. This will be blended with conventional jet fuel to meet safety specifications and delivered to Changi Airport in two batches in 2024. This initiative is part of the airline's goal to have a minimum of 5% SAF in their total fuel uplift by 2030, reducing greenhouse gas emissions by up to 80%.
Singapore Airlines' total expenditure also includes other costs such as labor, which has been impacted by inflationary pressures. The airline has warned that revenue and profitability are being affected by rising competition and higher fuel costs, with the latter being a challenge for the entire industry as airlines increase flights and routes to meet demand.
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Singapore Airlines has ordered sustainable aviation fuel
The cost of jet fuel has been rising over the years, with Singapore Airlines spending SG$1.38 billion ($987 million) on fuel in Q2 of 2021. In 2023, there was a slight reduction in fuel costs, but airfares continued to increase globally. Oil prices have remained volatile throughout 2024, with the International Air Transport Association (IATA) estimating that crude oil prices would be between $85 and $90 per barrel.
Singapore Airlines has taken a significant step towards sustainability by ordering 1,000 tons of sustainable aviation fuel (SAF) from Neste, a leading producer of sustainable aviation fuel. This agreement marks an important milestone in the airline's commitment to reducing its environmental impact and achieving its long-term decarbonization goals. The SAF will be produced at Neste's refinery in Singapore, using 100% renewable waste and residue raw materials, and delivered to Changi Airport's fuel hydrant system in two batches in 2024.
Neste's Singapore refinery is the world's largest production facility for jet fuel made from waste materials, with an annual capacity of up to one million metric tons of SAF. The agreement between Singapore Airlines and Neste is in line with Singapore's mandate for flights departing the country to adopt a blend of sustainable aviation fuels, reaching 1% SAF from 2026 and increasing to 3-5% by 2030. This mandate is a step towards the nation's goal of achieving net-zero aviation emissions by 2050.
The use of SAF is expected to play a crucial role in reducing the aviation industry's carbon footprint, with Singapore Airlines aiming for a minimum of 5% SAF in its total fuel uplift by 2030. This initiative not only contributes to the airline's sustainability goals but also ensures the long-term viability of air travel by preserving global connectivity, economic prosperity, and cultural exchange for future generations.
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Frequently asked questions
The exact figure is not publicly available, but it is known that Singapore Airlines spent SG$1.38 billion ($987 million) on fuel in Q2 of 2021. In 2023, the airline warned that higher fuel costs would affect revenues and profitability.
Singapore Airlines' jet fuel consumption for the fiscal year 2023/2024 was about 1.6 billion gallons. This is an increase from previous years, likely due to the recovery of air travel as borders reopen.
Jet fuel costs are a significant expense for airlines, and fluctuations in fuel prices can impact revenues and profitability. Singapore Airlines has introduced fuel surcharges on tickets to offset some of the fuel costs, but this practice has received mixed responses. To mitigate the impact of volatile fuel prices, the airline can also use fuel hedging strategies.
