Jet fuel demand to remain low as airlines buckle up for tough ride

Demand for flights and jet fuel could take years to recover from the coronavirus crisis as airlines struggle to survive their worst downturn, haunted by possible changes in the habits of tourists and business travelers.

Among the various fuels, jets have been hit hardest and industry leaders warn it will take years for all-important airline-industry demand to return to 2019 levels.

“Jet fuel consumption will be impacted for a longer time and maybe not recover fully even next year, as travelers remain concerned about long-haul vacations, and businesses get used to online meetings,” said Per Magnus Nysveen, head of analysis at Rystad Energy, a consultancy.

Exemptions for agriculture and freight from widespread lockdowns have offered some support to diesel and fuel oil, but jet demand remains weak as a significant slice of the world’s 23,000-strong commercial plane fleet is in storage.

Jet fuel prices in Singapore JET-SIN have slumped 61% over the last two months. Refining margins or cracks for jet fuel in Singapore JETSGCKMc1 are currently lingering at narrow premiums over Dubai crude after hitting minus $3.35 per barrel earlier this month, their lowest on record.

The International Air Transport Association (IATA), representing airlines, has already warned of a slower recovery than in past crises. On Tuesday, it raised its forecast for 2020 revenue losses by 25% to $314 billion.

Director General Alexandre de Juniac told Reuters he sees a staggering lifting of restrictions starting with domestic, then regional, and finally intercontinental routes being reopened where fuel consumption plays a critical role.

IATA has warned any recovery would not start before the last quarter of the year.

Planemakers Airbus and Boeing have also warned of an extended crisis, with few analysts predicting a return to previous conditions until 2023 or 2024.

According to Robert Stallard of Vertical Research Partners, it could be almost five years before the active aircraft fleet returns to where it was at the end of 2019.

But the head of Ryanair, Europe’s largest low-cost airline, brushed off forecasts of a sluggish recovery, telling Reuters he saw a swift traffic rebound fuelled by “massive price-dumping” in a race to win back passengers.

Just as important for fuel demand, many airlines expect to use the crisis to speed up retirements of their oldest and thirstiest jets. That said, low oil prices mean the incentive to invest in costly new equipment is tempered for now.