Here's a smart move Singapore Airlines did for earnings recovery

Will it be for long-term?

According to DBS, with yield and demand expected to stay fairly stable, it believes the biggest swing factor for SIA’s earnings would be jet fuel price, which has largely traded between US$120 per barrel and US$140 per barrel in the last two years.

DBS noted that SIA is 57% hedged at US$119/bbl for FY14. During its results briefing, SIA disclosed that it was about 57% hedged for its FY14 fuel requirement at US$119 per barrel, which is well below the average fuel price of over US$130 per barrel in its last two financial years.

"Whilst jet fuel is currently at US$115 per barrel, we believe SIA has made a smart move to hedge a substantial portion of its fuel requirements at less than US$120 per barrel – paving the way for some earnings recovery in FY14," said DBS.

Here's more:

We now project lower average jet fuel price for SIA. With SIA hedging a good portion of its forward requirements, we have lowered our jet fuel forecast for the group to US$125/bbl in FY14 and US$130/bbl in FY15.

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