Singapore Airlines 2014 Annual Report Download - page 194

192
NOTES TO THE FINANCIAL STATEMENTS
31 March 2014
SINGAPORE AIRLINES
38฀ Financial฀Risk฀Management฀Objectives฀and฀Policies฀(in฀$฀million)฀(continued)
(a) Jet fuel price risk (continued)
Jet fuel price sensitivity analysis
The jet fuel price risk sensitivity analysis is based on the assumption that all other factors, such as fuel surcharge and
uplifted fuel volume, remain constant. Under this assumption, and excluding the effects of hedging, an increase in
price of one USD per barrel of jet fuel affects the Group’s and the Company’s annual fuel costs by $46.6 million and
$39.1 million (FY2012/13: $45.6 million and $38.4 million) respectively.
The fuel hedging sensitivity analysis is based on contracts that are still outstanding as at the end of the reporting period
and assumes that all jet fuel, Brent and crack hedges are highly effective. Under these assumptions, with an increase or
decrease in jet fuel prices, each by one USD per barrel, the before tax effects on equity are set out in the table below.
Sensitivity analysis on outstanding fuel hedging contracts:
The Group The Company
31 March 31 March
2014 2013 2014 2013
Effect on equity Effect on equity
Increase in one USD per barrel 31.2 18.5 25.5 15.2
Decrease in one USD per barrel (31.2) (18.5) (25.5) (15.2)
(b) Foreign currency risk
The Group is exposed to the effects of foreign exchange rate fluctuations because of its foreign currency denominated
operating revenues and expenses. For the financial year ended 31 March 2014, these accounted for 53.1% of total
revenue (FY2012/13: 56.4%) and 66.9% of total operating expenses (FY2012/13: 68.7%). The Group’s largest
exposures are from United States Dollar, Euro, UK Sterling Pound, Swiss Franc, Australian Dollar, New Zealand Dollar,
Japanese Yen, Indian Rupee, Hong Kong Dollar, Chinese Yuan, Korean Won and Malaysian Ringgit. The Group
generates a surplus in all of these currencies, with the exception of USD. The deficit in USD is attributable to capital
expenditure, fuel costs and aircraft leasing costs – all conventionally denominated and payable in USD.
The Group manages its foreign exchange exposure by a policy of matching, as far as possible, receipts and payments
in each individual currency. Surpluses of convertible currencies are sold, as soon as practicable, for USD and SGD. The
Group also uses forward foreign currency contracts and foreign currency option contracts to hedge a portion of its
future foreign exchange exposure. Such contracts provide for the Group to sell currencies at predetermined forward
rates, buying either USD or SGD depending on forecast requirements, with settlement dates that range from one month
up to one year. The Group uses these currency hedging contracts purely as a hedging tool. It does not take positions
in currencies with a view to making speculative gains from currency movements.
Cash flow hedges
As at 31 March 2014, the Company holds USD285.3 million (2013: USD256.0 million) in short-term deposits to hedge
against foreign currency risk for a portion of the forecast USD capital expenditure in the next 10 months. A fair value
loss of $0.4 million (2013: gain of $4.9 million) is included in the fair value reserve in respect of these contracts.
During the financial year, the Group entered into financial instruments to hedge expected future payments in USD
and SGD. The cash flow hedges of the expected future purchases in USD and expected future payments in SGD in
the next 12 months are assessed to be highly effective and at 31 March 2014, a net fair value loss before tax of
$21.1 million (2013: gain before tax of $305.1 million), with a related deferred tax credit of $3.6 million (2013:
deferred tax charge of $85.0 million), is included in the fair value reserve in respect of these contracts.