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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Will Jet Fuel Demand Ever Recover?

Airlines were banking on summer travel to offset some of the steep losses from grounded flights in the second quarter.

Although everyone knew that air travel would take the longest to recover from the pandemic, it became painfully evident for airlines and aircraft manufacturers at the end of the summer travel season that global air travel is not rebounding as fast as they had expected when national lockdowns were lifted.  

Global commercial air traffic slowed its recovery pace in August, sending a warning to the oil market that jet fuel demand would likely take at least three more years to reach pre-crisis levels—if it ever did.

The resurgence of COVID-19 cases in Europe has led to overnight quarantine measures, which have had many holiday takers scrambling home, making many consumers wary of booking flights to some popular destinations.  

European air carriers and manufacturers are struggling with the slower-than-expected recovery which started to reverse at the end of the summer, warning that more job and cost cuts will be necessary than initially announced.

In the United States, airlines are seeking additional aid on top of the one received in March in order to avoid thousands of furloughs and job cuts that could come as soon as October 1.

European Air Travel ‘Going Backwards’

At peak lockdowns in Europe, when air traffic in the continent was down 89 percent from 2019 levels, air traffic management agency Eurocontrol had predicted that traffic would gradually recover to reach 15 percent below 2019 levels in February 2021. The latest estimate from Eurocontrol, however, sees traffic weakening after August and staying at 50 percent lower than 2019 in February next year. 

“We’re going backwards now and it’s really worrying for the entire industry. There’s a lack of coordination between States on how to manage air travel,” Eurocontrol’s director general Eamonn Brennan said this month. Brennan called for urgent harmonized testing and common epidemiological assessment criteria, which would give more predictability for passengers, airports, and airlines. Related: The World's Most Expensive Crudes Get Expensive Again

For example, the resurgence of coronavirus cases in France in August disrupted the holiday plans of thousands of UK travelers who cut their holidays short and rushed to return to Britain to beat quarantine measures that were introduced overnight. Other popular destinations for UK travelers, Portugal and several Greek islands, also found themselves back on the quarantine list in September, requiring travelers entering the UK from those destinations to quarantine for 14 days.  

Europe’s Airlines, Aircraft Manufacturers Turn Even More Pessimistic

The reduced consumer confidence amid blanket quarantine measures in many European countries, some of which were (re)imposed overnight, has played a major role in the lack of meaningful air travel recovery since July. Major European air carriers and aircraft makers are now even more pessimistic than they were during the nearly Europe-wide national lockdowns in April.

“The survival of Air France-KLM is not a given,” Dutch Finance minister Wopke Hoekstra said on Dutch TV earlier this month. The Dutch and French governments, both of which hold minority stakes in Air France-KLM, have already helped the airline with financial aid packages. Air France-KLM and all airlines are cutting jobs and warn that those job cuts would deepen.

Germany’s Lufthansa said on Monday that it would further cut its fleet and personnel numbers as “the outlook for international air traffic has significantly worsened in recent weeks” amid “significantly lower air traffic recovery than what was expected in summer.”

France’s aircraft manufacturer Airbus told employees that layoffs were coming as voluntary redundancies would not be enough to cut costs.

“I owe it to you to be transparent: it’s unlikely that voluntary departures will be enough,” CEO Guillaume Faury wrote in a letter to the 130,000 employees, seen by Reuters. Related: The Debt Crisis Is Mounting For Oil Economies

“Unfortunately, the recovery in airline traffic over the summer period has not been at the level the industry was counting on,” Faury wrote, adding that “We must now prepare for a crisis that will probably be even deeper and longer than the previous scenarios suggested”.

U.S. Airlines Seek $25B Additional Federal Aid To Avoid Layoffs

In the United States, airlines are pushing for US$25 billion more in federal aid so that they would not start redundancies on October 1, the date on which a ban on airline industry layoffs expires. Without additional aid, U.S. airlines could furlough or lay off up to 50,000 employees.

The White House is open to a stand-alone relief package for airlines, White House chief of staff Mark Meadows said last week after meeting with the CEOs of American Airlines, United Airlines, Delta Airlines, and Southwest Airlines.

On Monday, Republican Senators Roger Wicker of Mississippi and Susan Collins of Maine introduced a bill proposing another US$28 billion in federal aid to airlines to stave off job cuts until March next year.  

“[T]he market has not turned around as much as we had hoped, and additional relief is needed to prevent more than 60,000 aviation sector employees from losing their jobs beginning October 1,” Wicker said.

The significantly lower airline passenger traffic and the significantly lower-than-expected recovery in the summer is dooming jet fuel demand for years to come.

Aviation fuel demand accounted for just 8 percent of total global oil demand in 2019, but the slump in the industry means that jet fuel will continue to be a drag on oil demand for at least another three to four years, even if demand for road transportation fuels returns to pre-pandemic levels sooner. 

By Tsvetana Paraskova for Oilprice.com

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