(MENAFN – Gulf Times) Global jet fuel markets pin their hopes on a rebound in air cargo demand and spur in international flights on mass vaccine roll-outs in several key countries this year.
Air cargo demand is expected to receive a further boost globally as airlines have begun playing a key role in mass vaccine roll-outs.
But whether passenger traffic will have a similar recovery this year remains to be seen as several countries renewed travel restrictions to battle a resurgence in coronavirus cases.
The pandemic brought air travel to a virtual halt last year, and analysts say it may take years before global appetite for jet fuel returns to pre-pandemic levels.
While passenger air travel globally has recovered from its plunge to near total stoppage in May last year, the number of scheduled flights remained around 45% below year-ago levels in November 2020.
Cargo traffic, however, has recovered far more briskly, and in October last year was only 6% below year-ago levels, thanks to booming e-commerce.
Fuel efficiency, in terms of capacity use, ie per Available Tonne Kilometres (ATK) would have improved by 2% in 2020 and expected at the same rate in 2021, as older aircraft will be retired or put into storage.
As much of the industry was grounded throughout the second quarter of the year and capacity has not fully recovered, CO2 emissions were expected to be 47% lower in 2020 compared to 2019, an IATA analysis showed.
In 2021, with the increased use of fuel efficient aircraft and slowly recovering air transport services, CO2 emissions will rise but are still forecast to be 33% lower than pre-crisis levels.
Fuel is such a large cost for airlines that it is the focus of intense efforts across the industry to find efficiency improvements.
Such gains can take a variety of forms including replacing fleet with new aircraft, more efficient operations and efforts to persuade governments to remove the airspace and airport inefficiencies that waste around 5% of fuel burned each year.
Industry experts say fuel costs constitute roughly one-third of an airline’s operating costs. Hence, a marginal change in crude oil prices can significantly impact its profitability.
Jet fuel prices have long driven airline profitability and the aviation industry as a whole, representing between 14% and as much as 31% of airline operating costs in the past decade, an estimate shows.
Consequently, airlines hedge a large portion of their annual fuel consumption at lower oil prices in order to protect themselves from the volatility in oil prices.
The global body of airlines IATA estimates that jet fuel will average $59.8/barrel this year. This, it said will have a $35.8bn impact on the airline industry’s 2021 fuel bill.
Meanwhile, Asian refining margins for jet fuel rose on February 2 to their strongest in nearly two weeks, helped by tighter supplies of the aviation fuel and hopes that Covid-19 vaccines would help boost cross-border travel in coming months.
The airline industry has been the weakest link in the recovery of fuel consumption that was decimated when the pandemic first hit last year, robbing refiners of one of their biggest customers, according to Bloomberg.
Things may get worse for aviation fuel as the Biden administration in the US vows tough enforcement of safety travel measures, including self-quarantine for people arriving from other countries.
The aviation sector consumed almost 8% of oil products globally in 2019, or almost 7.5mn barrels per day according to BloombergNEF’s 2020 Aviation Fuel Outlook. The impact of Covid-19 on jet fuel consumption will be felt until 2026, when demand will return to 2019 levels. Despite passenger air recovering to 2019 levels by 2024, and freight by 2023, the early retirement of older aircraft, like the Boeing 747 and Airbus A380, will lead to a more efficient fleet in operation.
In 2020, Covid-19 grounded much of the world’s aircraft, leading to almost a halving of fuel consumption. Long-term, however, the appetite for air travel is expected to grow.
And with few alternatives and without significant policy intervention, air miles will continue to be powered by fossil fuels.
Many analysts, however, don’t see jet fuel demand materially recovering until the second half of 2021 at the earliest with mass vaccine availability.
*Pratap John is Business Editor at Gulf Times. Twitter handle: @PratapJohn
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