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Singapore Airlines Ltd’s Share Price Is Down By 10% In The Last 3 Months: Here’s Why

Over the past three months, Singapore Airlines Ltd‘s (SGX: C6L) share price has fallen by 10% to S$9.65. What may have caused this drop in the Singapore Airlines share price?

Reasons for a decline

There can be many reasons behind a stock’s price decline. But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related.

The former deals with how a stock’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the stock’s profits.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

The case with Singapore Airlines share price

In Singapore Airline’s case, I believe the former is the main culprit. Here’s a table showing the revenue and operating profit of Singapore Airlines for the first quarters of FY18/19 (financial year ending 31 March 2019) and FY17/18:

Source: Singapore Airlines earnings update

We can see that Singapore Airlines’ revenue as well as operating profit both fell in the first quarter of FY18/19 on a year-on-year basis. The main culprit for the company’s weaker operating profit was the 35% jump in fuel costs.

What’s next

Going forward, Singapore Airlines expects cost pressures to remain due to rising fuel costs. In order to reduce the risk of rising fuel prices, Singapore Airlines “has hedged 46.3% of its fuel requirements in MOPS (21.8%) and Brent (24.5%) at weighted average prices of USD65 and USD54 per barrel respectively,” for the rest of FY18/19.

Nevertheless, any significant jump in fuel prices going forward will still have a negative impact on Singapore Airlines’ profitability since only 46.3% of its fuel requirements are hedged at the moment.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.