Singapore Airlines Group expects to extend capacity cuts and warns of material impact to its financial performance in the quarter ended 31 March.

Singapore banned short-term visitors from entering or transiting from 24 March, and the group said in a stock-exchange disclosure on 15 April that “capacity was further rationalised in response”.

By the end of March, SIA and SilkAir’s combined capacity was reduced by 96% while Scoot suspended 98% of its network until the end of April. Then, the group said it will ground 138 of 147 aircraft operated by SIA and SilkAir, as well as all but two of Scoot’s 49 aircraft.

SIA Group says in the latest statement: “Looking forward, the group may need to extend these capacity cuts if border controls and travel restrictions remain in place and travel demand continues to be low. Operating this limited schedule will have a severe impact on the group’s financial performance.”

While its cargo demand has held up and freighter aircraft operate as planned, SIA Group says the reduction in passenger operations has significantly reduced overall cargo capacity. It has therefore been selectively deploying passenger aircraft on cargo-only flights to meet demand from global supply chains.

Cirium fleets data shows that SIA Group has seven Boeing 747-400 freighters in its fleet.

For the month of March, the group’s RPKs declined by 60.4% year-on-year, and against a 43.8% decline in capacity, passenger load factor was down 24.1 percentage points to 57.4%. FTK was 28.8% lower versus a 34.7% drop in capacity, pushing cargo load factor up by 5.7 percentage points to 68.2%.

SIA Group says the collapse in passenger traffic has a severe impact on its revenues and it expects a material impact on the group’s financial performance in the recently concluded quarter.

“While the capacity cuts and other cost management measures that SIA has implemented have helped to reduce expenditure, many costs are unavoidable regardless of the number of flights mounted. That means these measures will not fully offset the contraction in passenger revenue.”

The oil price shock has also added to its woes, and the group states that given the scale of flight cuts, it is now in an over-hedged position with respect to fuel consumption.

It says: “Surplus hedges will need to be marked to market as at 31 March 2020, a date on which the Brent oil price was close to its 10-year low, and are expected to generate substantial losses.”

In its annual report for financial year (FY) 2019, SIA stated: “As at 31 March 2019, the group had entered into longer [D]ated Brent hedges with maturities extending to FY2024/25 that cover up to 46% of the group’s projected annual fuel consumption, at average prices ranging from $58-63 per barrel.”

Commenting on the group’s sensitivity to jet fuel price, the same report says that a $1 per barrel increase in the price of jet fuel had a S$56.7 million ($40 million) impact on the group’s annual fuel costs that year, excluding the effects of hedging and assuming all factors such as the amount of fuel uplift and fuel surcharges are kept constant.