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Tuesday, September 15, 2020

Most sensible comment of the day

Anonymous said... Why are there so many bullies here waiting to see how many people losing their jobs? If you have nothing nice to say, please keep your comments to yourselves at the very least. For some, it is their dream to be a Singapore Girl since young, nothing wrong. For some, it’s their dream to be a cabin crew so that they can travel the world, nothing wrong too, right? So why are everyone here, waiting to see how some people fall? Even using nasties against crews. Like i mentioned, if you have nothing nice to say, please keep the comments to yourselves. If you wanna be a big bully, submit your comments with your actual name and don’t hide behind your phones, thanks!


Anonymous said...
This comment has been removed by a blog administrator.
Benjamin Teo said...

One thing the mainstream media has quite obviously steered clear of probing and questioning SIA on is why it continuously hedged so much of its fuel requirements so far in to the future, as far as five years. Industry norm is 1-2 years max. SQ thought it had a crystal ball. So five years from now, our taxpayers money will still be coming out via Temasek to pay for SQ's overpriced fuel contracts.

The worst thing is, this is not the first time SQ has made heavy fuel hedging losses and if I am not wrong, their losses from hedging far outstrip their gains. $2.6 billion in fuel hedging loss expected this fiscal year. If that amount was halved, imagine how many jobs could have been saved?

Some people in the management clearly need to be questioned on this. Don't expect SPH journalists to do it.

FYI, I am not a crew nor a SQ shareholder. SQ frequent flyer and I already started to get the impression before Covid that whilst many of the crew work very hard in their customer-facing jobs, a lot of the SQ people sitting in the office are out of touch with reality. The poor design of SQ latest suites (people facing each other when eating) was one less damaging example. This fuel hedging loss is a much more serious issue.

Anonymous said...

no one want to question about the fuel hedging because might be another keppel corp kind
can of worms

Anonymous said...

Feul prices are highly volatile. One incident, especially in the Middle East, can send prices doubling or tripling in a matter of days. It can remain high for some time.Nobody, absolutely nobody, can predict the future. Hindsight, with the knowledge that in past years, the hedge did not provide any protection is a moot argument.

It is like saying, "I shouldn't have had to pay for my insurance, house, personal, home, car, company, airline insurance for the past 10 years because nothing happened and I could have saved X amount of dollars."

Having a hedge is not about maximizing profits. Having a hedge is about limiting losses. Whether or not it is a good policy or not is up to individuals to decide. If you do not like the policy of the company, you do not need to invest in that company.

Having a hedge means, "For this year's (or next year's) budget planning, I can safely say that the fuel cost will be $X - $Y and so my profits will be $Z.". Without a hedge, the board can only say "Our profits are budgeted to be $Z, but if things don't work out, our looses can be unlimited." I say unlimited because there is no upper limit on how much fuel prices can be at.

Hope this adds a new perspective.

Benjamin Teo said...

How can one "safely say that the fuel cost will be $X-$Y and so my profits will be $Z"?? If the fuel cost is far below $X-$Y range, my profits will be far below $Z and I have no idea how much lower my profits could be. It cuts both ways. Even with a hedge, "our losses can be unlimited", at least all the way down to theoretical price of oil at $0.

Large majority of airlines hedge to some extent, yes. But SQ is the only one that hedged all the way till 5 years into the future.

Anonymous said...

Sorry for the misunderstanding. $X to $Y, not minus.

So, when doing a budget, you assume a price range for what you don't hedge, and you know for certain a chunk of the cost with a hedge. Hence, you can derive from the budget what your best guess what your profits can be.

Downside price for fuel is limited, because if cannot go below $0. So, if the price goes down to $0, your profits are limited on the upside.

Upside of prices are unlimited....... so your losses become unlimited, theoretically.

Would people invest in a company that will always have that potential to become bankrupt? Would passengers book flights in advance if that company may become bankrupt and lose their money and bookings?

Or, would your invest and use/travel with a company that has a huge chance of still being solvent for the foreseeable future?

But my question remains........ Do you have insurance? If you do, then you fundamentally agree with fuel hedging.

Benjamin Teo said...

Your comparison with insurance doesn't make any sense at all and is a false choice. In insurance you pay a premium (which is almost always fixed and/or clearly set out in advance) in exchange for the insurer covering you up to a certain predetermined limit of liability (based on what the insurer's actuaries and underwriters have assessed to be profitable). Apart from any deductible or co-insurance clauses and leaving aside disputes relating to insurance coverage, I am effectively guaranteed that my only outlay is the premium and nothing more.

This is apples and oranges with fuel hedging which as you yourself have admitted, there is a downside all the way down to $0. There is no pre-determined amount SQ can pay upfront to ensure that that's all it loses. It's as good as you paying the premium for your upgraded medishield plan, but when cancer hits, the insurer tells me that actually, sorry no cigar, but latest market developments mean that we can't cover you for this illness at previously agreed rates, you pay yourself first, we cover you only after you reach $0 in your savings.

Similarly, your example about potential to become bankrupt holds no water. It applies equally to whether or not the airline engages in fuel hedging. Excessive hedging, and just like SQ now, it would effectively be insolvent without taxpayers money pumped in. In case you didn't read my earlier comment, I'm not saying SQ should not hedge at all. The issue here is why SQ hedged at such a significantly greater rate into the future than any other major airline in the world. And the fact remains that SQ has lost far more money from hedging in the last 10 years than the losses it offsetted. So clearly, they have weighted too much on hedging (whether in terms of proportion or time).

Anonymous said...

Ah.... now we are getting better quality comments and thought-provoking as well.
Instead of the usual crap about CC cannot find job after leaving the airline bec they only know how to serve coffee/tea only.
Boh Tong campaign Mgr.

Anonymous said...

Exactly the point you've made. Hedging IS an insurance premium. You pay for the insurance, and if you don't make any claims that year, effectively you've 'lost' that money.

Fuel Hedging IS a pre-determined amount SQ pays for it's fuel upfront to ensure it's fuel requirements cost only that.

However, sometimes the PLATT fuel price is below the hedged price, and hence a loss. Sometimes the PLATT fuel price is higher, and SQ will benefit.

My Budget for FY2021/2022:
(round numbers used for ease, and only fuel cost)(highly simplified I know, but since we're talking about fuel hedging)

Revenue: $10,000,000. Based on projected load, available seats and routes, all known.
Fuel Requirement: 1,000,000 liters. Also known, based on frequency, aircraft type and frequency.
Today's fuel price: $3/liter (an exaggeration)

Scenario 1, (no fuel hedge):
Fuel Price remains within the $3 range
Profit/(loss) = $7M ($10M - $3M )

Scenario 2, (50% fuel hedge at $5/liter):
Fuel Price remains within the $3 range
Profit/(loss) = $6M
$10M – [$1.5M (500k liters at $3) - $2.5M (500k liters at $5)]
Fuel Hedge loss of $1M

Scenario 3, (50% fuel hedge at $5/liter):
Fuel Price goes to $15 range
Profit/(loss) = $0
$10M – [$7.5M (500k liters at $15) - $2.5M (500k liters at $5)]
(If there was no Fuel Hedge, LOSS will be $5M and if prices go higher, losses will be bigger)
Scenario 1, maximum profit is $10M, as prices cannot go below $0
Scenario 2, there is a loss of profit of $1M for buying the fuel hedge
Scenario 3, there is a protection against loss, as 50% of required fuel has been hedged and locked in at a specific price. Again, there is no MAXIMUM any item can be valued at, hence an unlimited loss. Fuel can go higher than $15, maybe $20, even $100.

In 2003/2004 jet A1 fuel in 1.5 years, went from US$35 to US$130.

Benjamin Teo said...

Looks like I'm not the only one that is concerned about hedging.

Mr anonymous, you are again being extremely disingenuous with your argument. An insurance premium is ALWAYS a significantly smaller percentage of the maximum total risk that the insurer is liable for. Just because you "lose" the premium doesn't equate to it being the same as "losing" through fuel hedging.

You then say it is predetermined amount that SQ pays for fuel to ensure its fuel costs only that. Yes, but how is that the same as insurance? If we are to use a proper analogy, that will mean now when you buy your medishield, or even let's say a simpler example, your motor insurance. You must now pay upfront the cost of your windscreen replacement replacement. To ensure your windscreen replacement and maybe the cost of a usual motor accident repair (or multiple accident depending on what the actuaries put your risk profile at) so that repairs "only costs that" in case the price of windscreen rises in future beyond what the actuaries predicted.

I'm still waiting for your explanation on why it is a sound practice for SQ to have hedged so far into the future when no other major airline does it.

Anonymous said...

Firstly, I do take offence at being called disingenuous.

If you do wish to discuss your opinions with someone who had a different opinion, but would like to degrade it into name calling, do let me know. I will be happy to leave my opinions to myself.

Having said that. Let’s get to your points.

A fuel hedge is akin to an insurance, but, there is no ‘maximum total risk’ calculable. Prices have an unlimited upside. There is no cap to the price that the fuel can go to. The supplier must supply the amount of fuel you bought.

For insurances, there is a cap of Maximum pay-outs. Even yearly maximums, and per claim maximums. And if you’re in a higher risk profile, your premiums are higher. Smoker, older, history of disease in your family.

Again, the point that I have, which your example does not cover (windscreen), is because for fuel, I am making a future purchase, at an agreed price. I WILL need the fuel. With insurance, you do not pay upfront for a windscreen, because you do not know when you will need a replacement, if at all.

If a windscreen costs $1000. My charge to insure your windscreen may only be $10. But that takes into account not all my clients will change their windscreen. I may have 1000 clients and the total windscreen insurance I collect is $10,000. As long as I have less than 10 clients a year changing their windscreens, I’m ok. Hence, the individual cost is much less than the actual item. Insurance companies have all sorts of ‘protections’ built in. And they can also choose not to insure you.

As to why SQ hedges further into the future than other airlines? It’s simple. It’s because they are more risk adverse than other airlines. It is a policy that has served it’s purpose. The issues that SQ is facing now, is not because of it’s hedging policy. Do not let that affect the reasons why SQ needs a cash infusion.

I believe that SQ would hedge on a 5 year moving window, and an example would be:
Year 1: 50% hedge
Year 2: 40% hedge
Year 3: 30% hedge
Year 4: 20% hedge
Year 5: 10% hedge

For disclosure, I too have never been employed or paid by SQ or any of it’s affiliates.

Benjamin Teo said...

The irony of you (aka Mr/Ms Anonymous) taking offence at simply being described as using disingenuous arguments is rich. And yet again, you try to muddy the water with all of your arguments, now even alleging that calling your arguments disingenuous is name calling. I suggest you read up on what name calling and ad hominems actually entail. Actually, I'm sure our dear Luke here will be happy to point you to other posts on his blog which are actually "name calling".

And thanks for finally acknowledging the difference between insurance and hedging (despite at first claiming that "fuel hedge is akin to an insurance". In case you have still got your knickers in a knot, I recommend you get yourself a copy of MacGillivray which will explain to you just what insurance is and how it differs from hedging and other sorts of risk redistribution mechanisms.

As to SQ hedging policy serving its purpose? Well I guess if the purpose is to rack up much greater losses than gains even before 2020, then OK sure.

Anonymous said...

Disingenuous !Frequently heard in political debate,one way put down,etc like. the Athc case.Remember, half of BT's lurker,looker,and looser in the stock market meltdown are not taking mildly looses.Thus,a strong debate, not strawman argument, not strongman arguement,showing facts and figures, dollars and cents,continues here.Winners are the lurkers, can we say POV,the hedge should be only high as 2 houses away,simple fence of briar,and brambles, just as in Cinderela, can down.Not a complete set,ordered from UK house of Fraser,diamond crusted,of silver and precious inlaid,with diamonds in the sky, etc,costing billion. In our Garden of Eden,the shareholders seems to want the hedger,the bathwater, and the Baby too,and hint of Bossini to practical Tees,thrown out.Most of the luxury house,apparel shop are going insolvent, so at paper value the yellow bird.Good argument here,thanks for the cut and thrust,we need such in Partyment, pandemics brings the best in Sin,similar after the Occupation in 1941.Will our society reborn ?Not to the purist of Give me liberty,or give me death, just a smarter nation,if we not already one.Stupid arguments will be demolished, trolls shall be rolled out ke susi,and slice apart.These arguments made my day !Thanks for being entertainment.

Anonymous said...

Interesting conversation that unfortunately collapsed. Agreed it has been entertaining! But I would add that his using the word "insurance" wasn't wrong. I found out that it can mean "a thing providing protection against a possible eventuality".

Learn something new everyday.

Anonymous said...

OOps......looks like Ben Teo lost the plot.

Anonymous said...

Winning an arguement,losing the case,there are two sides to a coin.Or winning the battles but losing the war,two or more ways to see it,a strongman's arguement,said those who dissagree with me report to the rifle range for meeting.At the end,billions lost,not thousand,those hit hardest heard louder,scream loudest,talk all over here.Since it would not be mentioned by 154,it would erupt along the fault lines,blogline and whatever.Ben Teo said what was unsaid,all have lost a lots,thousand maybe,its not a plot ,more like plodding case of misstime,mistake in real life case of the effects of the Covid pandemic.Sin could have done better by lockdown,closedown the City,enforce social distancing masked up two months back,then billions might not be lost.Small voices said it can spread by droplets,Pandemic 'X',Sin will be well prepared,saving billions by early intervention,ulvc sterilising,and movement control.Rumours and words of mouth spread trueism saving the world from its stiff top down rule of governance,incidents at ground zero,reporting upwards become watered down,twisted.Ivory towers need to be dismantle in order to be effective,then Ben Teo would not have to jump into the fray,as lost something as alledge just like WW2 under Occupation,do nothing or do something.Heros arise after every crisis,else they thought,this is City of the Dumb but Ben Teo's comment makes heroic reading,not loosing .Just my opinion.

Anonymous said...

I am sure SQ now would have to study the formulation and try to fine tune this hedging policy or abandon it altogether.
Before covid-19 SQ was just following the so called experts of hedging but ended up blinded and badly it. Hedging is just like playing the stock market. You can win for 15 years in a row but on the 16 years you get wipe out big time, just like SQ and all the other airlines. If u happen to be in the market at the wrong time and the stock market crashes, it's bye bye to your money and all those years of profiting.
Maybe it is better to forget about hedging altogether, bec in the long run you still loses.
Hedging can even bankrupt an airline strange enough, so it is not worth the risk and technicalities involved.

Anonymous said...

Before shale and Russia,can hedge till it covers the sky,but looking at Pandemic,all countries closing door to outsider,not to US,land of the antimasker,or Brazil,samba till zombies,or Eeydia covided more than population of certain country.Total covided,30 millions,nature's depopulation.Vaccine still far away and maybe a pipe dream,Trump could be antiChrist or not.Once covided,destroys the organs,brain and so on.Just like Zombies Apolyse,hopefully its not,not not succid bomber,expounding superiority,conspiracy theorists,jahadist,false prophets of doom,they seem to be quiet today,isis isit on a new path,vaccine deployment,cold store chains means poorer,hot country,without air route get left out.Herd transmission protection are for animals,just watch and add the numbers,self pawn themselves,also extinction.Imo,sin should be good,well connected,airhub,in fact,we should be the first to recover,with vaccine.