ST Engineering

[ValueInvestor]

Wow. Just wow.

I wish you guys were JC kids and I'm your JC teacher so I can put an A grade for your H1 economics paper.

Unfortunately, we're not.

Lower oil prices will be good for airlines? Really? Then why is the industry not doing well now?

The fact is, airlines depend on oil, A LOT. To the extent they will have futures agreement to buy oil at a cheaper (at that point of time) price. Meaning when oil was at say, 100 per barrel, airlines would have probably done a 3 year contract to buy it at maybe 90 to 110 per barrel instead (depending on the arragements, very likely to be 110 region instead, since nobody felt that oil was going to come off). Oil producers would be happy to take up such agreements as well since it would guarantee that their revenue would at least be increasing at a certain rate.

So when oil glut happens, airlines are still stuck with the same contracts. While other people are happily enjoy oil at 50-60 per barrel, the airlines are forking out the same old price for oil.

Sheesh.

And stop asking me to short ST Eng. It simply shows you have a lack of mathematical skills. I have already mentioned that I am bearish on ST Eng, but it would be a slow bear (bar any catalyst). As such, my funds would be better deployed elsewhere (read: opportunity cost). Also, it makes more sense to short counters that are lower in pricing for two reasons. Firstly, a one cent drop on say, Noble, represents a gain of over 1% (ignoring leverage). The same one cent drop on ST Eng represents only a gain of 0.3%. Now given such conditions, you would have to agree it would be pretty foolish to short ST Eng even if the view is bearish.

for airlines, they don't 100% hedge on oil futures.. depends on which airlines

0% to 70% also have, but none will 100% hedge

but over the next few years as the higher priced contracts expire, the airlines will still get the enjoy the lower oil prices

same thing now oil at $50-60, the airlines can buy oil futures to hedge the low prices for the next few years ma....

guess u are blinded by your bearish view hahaha

 

[ValueInvestor]

Wow. Just wow.

I wish you guys were JC kids and I'm your JC teacher so I can put an A grade for your H1 economics paper.

Unfortunately, we're not.

Lower oil prices will be good for airlines? Really? Then why is the industry not doing well now?

The fact is, airlines depend on oil, A LOT. To the extent they will have futures agreement to buy oil at a cheaper (at that point of time) price. Meaning when oil was at say, 100 per barrel, airlines would have probably done a 3 year contract to buy it at maybe 90 to 110 per barrel instead (depending on the arragements, very likely to be 110 region instead, since nobody felt that oil was going to come off). Oil producers would be happy to take up such agreements as well since it would guarantee that their revenue would at least be increasing at a certain rate.

So when oil glut happens, airlines are still stuck with the same contracts. While other people are happily enjoy oil at 50-60 per barrel, the airlines are forking out the same old price for oil.

Sheesh.

And stop asking me to short ST Eng. It simply shows you have a lack of mathematical skills. I have already mentioned that I am bearish on ST Eng, but it would be a slow bear (bar any catalyst). As such, my funds would be better deployed elsewhere (read: opportunity cost). Also, it makes more sense to short counters that are lower in pricing for two reasons. Firstly, a one cent drop on say, Noble, represents a gain of over 1% (ignoring leverage). The same one cent drop on ST Eng represents only a gain of 0.3%. Now given such conditions, you would have to agree it would be pretty foolish to short ST Eng even if the view is bearish.

you JC teacher? LOL wait long long

you only 2 years experience in the market and want to act pro already

really buay tahan you

maybe u got time should read more up investment books and try to be more humble

don't try to teach someone who has close to 1 decade of investing experience and have used this experience to attain financial freedom already ^_^

anyway i gonna let others be the judge

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[ValueInvestor]

July August & Sept will be volatile, waiting to enter.

Not desperate to buy but chances come will hoot de.

u have any entry price for STE that u are considering?

 

[Perisher]

Wow. Just wow.

I wish you guys were JC kids and I'm your JC teacher so I can put an A grade for your H1 economics paper.

Unfortunately, we're not.

Lower oil prices will be good for airlines? Really? Then why is the industry not doing well now?

The fact is, airlines depend on oil, A LOT. To the extent they will have futures agreement to buy oil at a cheaper (at that point of time) price. Meaning when oil was at say, 100 per barrel, airlines would have probably done a 3 year contract to buy it at maybe 90 to 110 per barrel instead (depending on the arragements, very likely to be 110 region instead, since nobody felt that oil was going to come off). Oil producers would be happy to take up such agreements as well since it would guarantee that their revenue would at least be increasing at a certain rate.

So when oil glut happens, airlines are still stuck with the same contracts. While other people are happily enjoy oil at 50-60 per barrel, the airlines are forking out the same old price for oil.

Sheesh.

Wow. Just wow.

You could learn a thing or two about being humble.

Given what you say, as the airlines already bought the oil at a high using a future contract which will come to pass in say 6 month's time, then 6 months later, they would get the new oil future price at a low too. It's a constant need. Not a 1 off event. They will still benefit from a long term lower level of oil price.

SO, the real issue here is, how big a % did the airlines hedged on future contracts when the oil price was in the 100s. If it's 30% or less, the airlines can buy cheaper oil futures now and profit more. Thus airline shares will go up. If it's more, they would just have to benefit later. Unless oil price goes back up before they can buy more oil futures contract.

I might be wrong here, feel free to correct me.
Anyway, it will do you and others a lot more good if you don't go about provoking people. I mean what were you trying to achieve with that tone?
Peace.

 

[Keverus]

1. who provoke who first? (yes, probably childish)

2. it would be rly great if someone stop the "oh, you bearish then go short lor" attitude. because..well, see my post.

 

[crunchyhwee]

Keverus korkor need to read more books or.. news

http://www.straitstimes.com/singapore/transport/singapore-airlines-and-silkair-cut-fuel-surcharges

 

[Keverus]

Wow. Just wow.

You could learn a thing or two about being humble.

Given what you say, as the airlines already bought the oil at a high using a future contract which will come to pass in say 6 month's time, then 6 months later, they would get the new oil future price at a low too. It's a constant need. Not a 1 off event. They will still benefit from a long term lower level of oil price.

SO, the real issue here is, how big a % did the airlines hedged on future contracts when the oil price was in the 100s. If it's 30% or less, the airlines can buy cheaper oil futures now and profit more. Thus airline shares will go up. If it's more, they would just have to benefit later. Unless oil price goes back up before they can buy more oil futures contract.

I might be wrong here, feel free to correct me.
Anyway, it will do you and others a lot more good if you don't go about provoking people. I mean what were you trying to achieve with that tone?
Peace.

You're right to point out it's not a once-off event. could had made my post more well-rounded. my oversight.

I believe airlines would hedge a huge majority of their supply. why wouldn't you, considering then the price of oil per barrel was sky-rocketing then? and it is an essential raw material to have.

the real benefit of this low oil prices will probably only come maybe a few years down. watch for airlines then. not all impacts are immediate, esp. positive impacts.

cheers,

 

[ValueInvestor]

Singapore Airlines and SilkAir cut fuel surcharges
The cuts, effective for SIA and SilkAir tickets issued on or after Feb 26, range from US$5 (S$6.80) to US$83, depending on distance and class of travel. -- PHOTO: SIA
The cuts, effective for SIA and SilkAir tickets issued on or after Feb 26, range from US$5 (S$6.80) to US$83, depending on distance and class of travel. -- PHOTO: SIA
Published
Feb 14, 2015, 5:51 am SGT
Reductions depend on distance, class of travel, range from US$5 to US$83

Karamjit Kaur Aviation Correspondent

Singapore Airlines (SIA) has joined a growing list of carriers that have cut or removed their fuel surcharges amid a sharp fall in oil prices in recent months.

The cuts, effective for SIA and SilkAir tickets issued on or after Feb 26, range from US$5 (S$6.80) to US$83, depending on distance and class of travel.

Economy and premium economy passengers will pay a fuel surcharge of US$31 for short flights and US$229 for longer sectors, for example, on the kangaroo route from Sydney to London via Singapore.

Other carriers that have recently cut or removed their fuel surcharges include Virgin Australia, Qantas, AirAsia and Firefly.

But this does not necessarily mean fares, which ultimately depend on supply and demand, will fall by the same quantum, industry analysts cautioned.

Qantas, for example, has said it intends to raise base ticket prices to offset the removal of fuel surcharges. The airline cited weak yields amid stiff competition on international routes as the reason.

While fuel prices have declined in recent months, jet fuel continues to account for a significant percentage of airlines' expenditure, analysts said.

To reduce their exposure to volatile and potentially rising fuel costs, airlines have traditionally turned to hedging, which involves locking in a guaranteed amount of fuel for future consumption at a fixed price.

This provides stability, but the flip side is that when prices fall, as they have in recent months, carriers end up paying more than the current market price.

SIA, for example, has hedged about 65 per cent of its fuel requirements for the six months to the end of March at US$116 per barrel - about double the current price.

For many other airlines locked in similar unfavourable deals, relief will come as current hedges expire and new contracts are signed at lower prices.

In a recent interview with The Straits Times, the chief economist of the International Air Transport Association said the plunge in oil prices should bring airfares down in a few months.

"After the middle of the year, we should see some of the benefits from lower oil prices being passed on to the consumer," said Mr Brian Pearce.

That bottom line is what matters to travellers. Said freelance tutor Alvin Wong, 22: "As long as overall fares come down, it does not matter to me how much of that goes into the fuel surcharge or other charges and taxes."

karam@sph.com.sg
Register here to get free digital access to The Straits Times until Aug 9, 2015.

 

[Keverus]

http://www.straitstimes.com/singapore/transport/singapore-airlines-and-silkair-cut-fuel-surcharges

there are many reasons for this cut.

 

[Keverus]

you JC teacher? LOL wait long long

you only 2 years experience in the market and want to act pro already

really buay tahan you

maybe u got time should read more up investment books and try to be more humble

don't try to teach someone who has close to 1 decade of investing experience and have used this experience to attain financial freedom already ^_^

anyway i gonna let others be the judge

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1. some ppl stay in a field for 10 yrs yet nvr accomplish what others can in 5 yrs. general statement.

2. u can ignore me for all i care. you're the one stalking me.

 

[Keverus]

This piece of news, Feb until now. got impact airlines positively meh?

Plus let's explore the article abit more.

Qantas, for example, has said it intends to raise base ticket prices to offset the removal of fuel surcharges. The airline cited weak yields amid stiff competition on international routes as the reason.

This shows that the airlines industry is an industry that is waning. too much competition overall.

While fuel prices have declined in recent months, jet fuel continues to account for a significant percentage of airlines' expenditure, analysts said.

To reduce their exposure to volatile and potentially rising fuel costs, airlines have traditionally turned to hedging, which involves locking in a guaranteed amount of fuel for future consumption at a fixed price.

This provides stability, but the flip side is that when prices fall, as they have in recent months, carriers end up paying more than the current market price.

SIA, for example, has hedged about 65 per cent of its fuel requirements for the six months to the end of March at US$116 per barrel - about double the current price.

For many other airlines locked in similar unfavourable deals, relief will come as current hedges expire and new contracts are signed at lower prices.

this whole portion proves my point lei.

"After the middle of the year, we should see some of the benefits from lower oil prices being passed on to the consumer," said Mr Brian Pearce.

let's see lor. now july liao. dont see it moving positively :S13:

 

[dork32]

i already mentioned. this guy is bias against the counter.

any good news will be looked upon with skepticism. any bad news will be inflated 10 times.

he is a bit like that uncle out there.

then there are counters where he likes. these counters drop until concuss he still say can buy

 

[Keverus]

Fact: st eng has been winning plenty of contracts over the years.

Fact: share price from 4.xx to 3.xx

 

[Shion]

Fact: st eng has been winning plenty of contracts over the years.

Fact: share price from 4.xx to 3.xx

Fact: The company is still very stable

 

[limster]

Sometimes, people tell themselves stories to explain why the share price will go up for a particular share.

This is called the narrative fallacy and is another common mistake made by beginning investors (alongside hindsight bias).

Of course, there is nothing wrong with casual chit-chat as that's what forums are for, just don't fool yourself into thinking you are performing fundamental analysis.

 

[Keverus]

Sometimes, people tell themselves stories to explain why the share price will go up for a particular share.

This is called the narrative fallacy and is another common mistake made by beginning investors (alongside hindsight bias).

Of course, there is nothing wrong with casual chit-chat as that's what forums are for, just don't fool yourself into thinking you are performing fundamental analysis.

 

[Perisher]

Different opinion is fine lar, don't assume one is always right and argue until face red can liao. State your opinion and if others disagree, so be it.

 

[havetheveryfun]

Fact: The company is still very stable

stability has some relation with share price but its not always the case...

Mr Market is irrational

 

[ValueInvestor]

STE seems ranged bound at 3.3 to 3.2 levels

 

[ValueInvestor]

Singapore Technologies Engineering rose 0.9% to $3.29. The engineering services group announced that it has clinched several aerospace contracts worth $920 million in the second quarter this year, which involve projects ranging from airframe, component and engine maintenance, to engine wash and pilot training.