Credit Update – SIA: Upcoming turbulence for the national carrier?

Following SIA's SGD 10-year bond issuance in January 2026 (check out the linked article below), we revisit the group's credit profile in light of its FY2025/26 full-year results.

Related article: New Issue: Take flight with SIA’s new 10-year bond yielding 2.950% (IPG)!

Don't Be Fooled by the Headline, core operations are holding up

SIA’s FY2025/26 financials reflected a group whose underlying credit profile continued to strengthen despite a sharp decline in headline earnings.

 
Reported net profit fell 57.4% to S$1.2b. Two items account for nearly the entire decline: the absence of a non-recurring S$1.1b non-cash accounting gain from the Air India–Vistara merger in FY2024/25 (ending 31 March 2026), and SIA's first full-year consolidation of Air India associate losses (an S$846m swing, versus only four months' exposure the prior year). Neither materially affects the economics of the group’s core airline operations.

 
Strip those out, and the underlying operating picture is unambiguously strong. Operating profit rose 39% to a record S$2.4b on record revenue of S$20.5b (+5.0% YoY). The second half was even more telling — operating profit of S$1.6b was up a formidable 71% YoY.

 
Operationally, SIA’s core metrics remained stable: Group passenger load factor reached 87.7% (+1.1 pts), with Scoot at a particularly impressive 90.4%. Passenger yield rose 1.0% to 10.4 cents/pkm for the full year, accelerating to +3.8% in the second half as fare increases began to take effect. These are not the metrics of an airline losing pricing power. Cargo remains the softer segment. Load factor edged up 0.2 pts to 56.3%, but yields fell 3.6%, compressing cargo revenue by S$45m to S$2.2b (down 2.1% YoY), reflecting a normalisation from post-pandemic peaks. 

The Middle East Variable That Defines FY2026/27

Looking ahead, the airline’s operational and financial performance will largely be defined by the trajectory of the Middle East conflict.

 
Counterintuitively, FY2025/26's fuel line was a tailwind. Net fuel cost fell 6.7% to S$5.0b, as full-year average prices were lower, hedging gains widened to S$143m, and USD depreciation against SGD provided additional relief. That benign environment is ending.

Jet fuel prices have more than doubled from pre-conflict levels. Because SIA prices fuel on a lagged basis, the full cost impact was only partially embedded in the March 2026 quarter, with the full impact expected to flow through in FY2026/27. SIA manages fuel price exposure through a combination of jet fuel swap contracts, ICE Brent swaps, and Brent-MOPS crack spread swaps. As of 1 May 2026, the current hedge book still provides partial protection, though coverage declines meaningfully through the year. Q1 FY26/27 (ending 30 June 2026) carries total hedge coverage of roughly 46%, split across Brent and MOPS contracts, at average hedged prices of US$68/bbl (Brent) and US$82/bbl, respectively.  These figures decline to 32% in Q4 at US$65/bbl, against a spot MOPS price north of US$100/bbl across much of the year. The unhedged exposure in the back half of FY2026/27 is therefore substantial.

 
Per SIA’s disclosure, every US$1/bbl increase in jet fuel prices raises the group’s annual fuel costs by S$54.1m before hedging. Netting out the S$38.9m per US$1/bbl equity sensitivity on outstanding hedge contract implies a net exposure of roughly S$15.2m per US$1/bbl. Assuming jet fuel spot prices remain at current elevated levels (roughly US$160/bbl), the group could face an incremental fuel cost headwind of S$1+b in FY2026/2027 related to FY2025/2026, before accounting for any offset from additional hedging, fare increases, or demand adjustments.

 
Operationally, SIA suspended Dubai services, and Scoot suspended Jeddah from 28 February 2026, with SIA's Riyadh launch deferred to September 2026. Beyond cancellations, longer rerouted flight paths mean higher fuel burn per journey with no offsetting revenue — a structural cost drag that persists as long as the conflict does. We highlight that this operational pressure extends to Air India, where the effect is arguably more acute given that the Middle East represents one of Air India’s highest-volume international corridors. Route suspensions already enacted by the airline should compound Air India’s already challenging economics, which would widen SIA’s share of associate losses moving forward.

 
Management's response has nevertheless been tactically effective. Fare increases have been implemented across both brands, although management acknowledged these only partially offset rising fuel costs. More importantly, the group is actively capturing the rerouting of Asia–Europe passenger flows away from Middle Eastern hubs and through Singapore. Concrete indicators are already emerging. Ticketed corporate revenue for April–June 2026 travel is already running 18% above the prior year, and high-value cargo tonnage (perishables, healthcare, live animals) grew 26% in March 2026. SIA is growing London Gatwick to up to twice-daily in peak summer, launching Madrid in October 2026, and adding Munich and increasing Milan frequencies — a deliberate pivot of premium capacity toward the demand that is coming to it.

In sum, management’s network expansion and premium capacity deployment into Europe could partially offset higher fuel costs. Nevertheless, we still expect some moderation in profitability in FY2026/27, depending on the duration and severity of the Middle East conflict.

Improving credit profile supported by lower leverage and stronger coverage

 
SIA’s credit profile strengthened over FY2025/26 despite the more volatile operating backdrop. Total debt (including leases) fell S$2.3b (aided by the full conversion of S$850m in convertible bonds by November 2025), improving the group’s debt-to-equity ratio from 0.82x to 0.62x. On a net basis — deducting S$6.6b in fixed deposits and S$1.3b in cash and equivalents — net debt stands at just S$2.7b, implying a net debt to equity of 0.16x (FY24/25: 0.30x). Liquidity remains a key strength; the group retains S$3.3b in undrawn committed facilities, while its debt programme still has approximately S$7.6b of untapped capacity should additional funding be required.

  
Importantly, the group continues to generate substantial organic cash flow. For FY25/26, SIA generated S$5.1b in operating cash flow, comfortably sufficient to fund S$2.6b in capex, S$1.3b in debt repayment, and S$1.2b in dividends without relying on external liquidity. Interest coverage (operating cash flow/finance expense) remains healthy at 15.2x, an improvement compared to the previous financial year (FY24/25) of 11.9x. Looking ahead, the capex cycle remains elevated, with fleet renewal expenditure expected to peak at approximately S$4.5b in FY2027/28. We also highlight that management has not shown any indication of injecting additional equity into Air India.  However, we believe the group’s balance sheet, available liquidity, and operating cash flow generation remain more than adequate to support these funding requirements. 

Table 1: Bond recommendations