Listening to Goh Choon Phong, one can’t help but catch a hint of weariness and wariness in his voice as he describes plans to get his planes back in the skies and claw back the markets that his company has lost amid the Covid-19 coronavirus pandemic.

“We don’t know what is ahead of us in terms of the pandemic, but we do know that we are now going forward from a position of strength,” the chief executive of Singapore Airlines (SIA) told The Straits Times.

He was referring to the fact that, after being hammered by the pandemic, which left most of SIA’s fleet grounded and forced it to cut 96 per cent of capacity and burn almost $500 million a month in cash, the airline group is finally starting flights to 33 points – 27 for SIA and subsidiary SilkAir, and six for its low-cost arm Scoot.

This is a far cry from the 136 points that the group used to cover, prior to the Covid-19 crisis.

For an airline that survived the impacts of the 9/11 terrorist attacks, the severe acute respiratory syndrome crisis, and the global financial crisis, this pandemic has threatened to be the straw that breaks its back. As markets across the world shuttered in rapid succession with governments closing their borders to prevent the pandemic from spreading, the airline has been forced to ground planes, furlough staff, cut salaries, freeze recruitment and suspend aircraft acquisitions.

But, as Mr Goh suggested, the company did indeed start the year on a strong footing.

Coming into the third quarter of FY2020, it had posted a profit of $315 million, up 11 per cent from $284 million a year earlier. Revenue for the three months to Dec 31, 2019, was up 3 per cent to a record $4.5 billion.

Much of this was the result of gains achieved during the first phase of its three-year transformation project. That operational and financial restructuring helped it achieve more efficiency, synergy and cost savings. It also managed to strengthen its financial position.

In January, the company had $3 billion in cash and credit, and was already talking to financial institutions to further boost its balance sheet. Then came the full force of the pandemic.

The effects are now well documented.

Faced with an unprecedented crisis, by April, SIA’s cash had been whittled down to $1.5 billion, while borrowings stood at around $6 billion. This included $3.75 billion in bonds, of which $500 million is due for redemption next month and another $200 million in April next year.

Faced with the dire financial and operating outlook, SIA launched its $15 billion fund raising, backed by majority shareholder Temasek. It has now secured the first tranche of $8.8 billion via its rights shares and mandatory convertible bond issues.

“Our balance sheet is now stronger, and this (fund raising) should see us through to the end of the current financial year,” Mr Goh said.

Still, moves are already under way to secure even more cash.

It can raise another $6.2 billion if needed via more rights issues. It is also in negotiations with various financial institutions and looking to other means such as sale and leaseback to further cash up.

Given how uncertain the current financial year looks, SIA could do with all the cash it can get heading into its second consecutive year of losses.

But the company’s financials were also weighed down by what analysts cite as an “ineffective” fuel hedging strategy.

SIA hedged 51 per cent of jet fuel and 22 per cent of Brent for FY2021 at average hedged prices of US$74 per barrel and US$58 per barrel, respectively. The company unveiled a mark-to-market hedging loss of S$710 million during its final quarter. The hedging losses played a significant part in contributing to its final Q4FY20 quarterly loss of $732 million and full-year loss of $212 million.

Given depressed oil prices and with much of its fleet still grounded, SIA will continue chalking up mark-to-market hedging losses during the current financial year and beyond.

But all that is history. Right now, SIA has to be focused on getting through a challenging FY21.

In launching 78 weekly services to 33 points, the group is moving proactively to recapture some of its markets, as are other carriers around the world. SIA’s capacity utilisation will edge up from 4 per cent to 6 per cent, while load factor will tick up from 9.1 per cent in April to above 10 per cent.

As more points open up in China, New Zealand, Australia and other markets around the region, this could rise to about 30 per cent or more by the year end. This will be driven by both transit traffic via Changi and “travel bubbles” being set up bilaterally.

While no one is expecting SIA to recapture all its 136 destinations any time within the next one year, the current trajectory in pandemic management suggests Asia-Pacific will lead in the steady opening-up of their economies, and skies. With no domestic market to speak of, how SIA’s service expansion pans out will depend on bilateral discussions between various governments.

A lot will depend on the easing of border controls. China has just announced it is opening once-weekly flights to 37 cities and increased frequency in three weeks if there are no inbound Covid-19 cases.

Many of the initial regional passenger services will have to piggyback on cargo routes the airline has already been operating during the crisis.

The airline will initially be using its more fuel-efficient Airbus A-350 and Boeing B-787 planes on most of these routes. Some A-320, B-737NG and B-777 planes will also come back into service. But the bulk of its fleet – including its 19 A-380 jumbos – is likely to remain grounded till some semblance of normality returns in passenger services – possibly later next year.

Meanwhile, the airline must be looking for green shoots in the aviation markets of Europe and beyond.

At this point, no one can say how things will pan out.

Optimists reckon that the discovery of a vaccine by the first half of next year could be a game changer. If that happens, markets could recover very quickly, requiring carriers like SIA to respond on short notice. Maintaining operational readiness and efficiency is the key.

But in the absence of such a positive development, and if the virus continues to linger – albeit at low grade level – SIA will have to work hard to win back customer confidence. While those who need to fly will still fly, they will choose the airline with the best health and safety protocols.

Also, with its legendary SIA girls donning masks and gloves, and serving meals in bento boxes, one wonders if the airline will still have the pricing power to charge premium rates for its tickets! Given its branding and service reputation, it just might.

Still, this is a business where you have to get it right the first time, and every time. Safety, reliability and efficiency will matter even more now than it did in the pre-Covid-19 era. SIA has the wherewithal to achieve this.

Its relatively stronger financial position, diversified strategy and national support have allowed it to ride out the storm, till now.

Going forward, it has to remain agile, flexible and nimble as it nurses itself back to strength.

This is where the next phase of its transformation project becomes critical. It will define how SIA recaptures and reinforces its leadership in the industry in a new post-Covid-19 world.

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