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Asian jet fuel recovery faces headwinds on Russia-Ukraine crisis


Singapore's VTL arrangements boost travel demand

Jet fuel prices spike on crude amid geopolitical uncertainty

High fuel prices to impact Asian airlines' operations: AAPA

  • Author
  • Surabhi Sahu    Su Yeen Cheong
  • Editor
  • Kshitiz Goliya
  • Commodity
  • Oil
  • Tags
  • Asia Pacific
  • Topic
  • War in Ukraine

Even though some Asian countries, such as Singapore, are opening up their borders and easing restrictions on air travel, jet fuel demand in the region is set to hit a turbulent patch as the Russia-Ukraine crisis threatens to spike aviation turbine fuel prices, denting passenger traffic.

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"Passenger flights are still limited [compared to pre-pandemic], and jet fuel is more and more expensive. How are the airlines going to afford?," said a regional refiner, adding that it was not easy to pass on the higher costs to passengers.

The Russia-Ukraine conflict could have far-reaching implications for the global economy as oil prices continue to rise, particularly Europe, given Russia's unique position as a pre-eminent energy supplier to the region, JY Lim, oil markets adviser at S&P Global Commodity Insights said.

"Our reference case assumes Asia's kerosene/jet fuel demand is expected to grow by 420,000 b/d for 2022, before moderating to some 290,000 b/d in 2023," Lim said.

"However, we expect downward adjustment as recovery faces headwinds amid rising fuel prices and the disruption of international aviation caused by the Russia-Ukraine conflict," he added.

Singapore's VTL a game changer

The Civil Aviation Authority of Singapore, or CAAS, on March 4 said it was extending its Vaccinated Travel Lane arrangement to rebuild Singapore's position as a premier air hub.

Under VTL, eligible vaccinated travelers can avail quarantine-free entry to Singapore if they meet all VTL requirements.

"The CAAS will extend the VTL to more cities in Malaysia, Indonesia, and India to facilitate travel and densify the Singapore air hub's connectivity with these key markets. We will also launch VTLs from two new countries: Greece and Vietnam," it said.

In addition it was also deepening its air links with Malaysia, Indonesia and India and to enable greater flexibility for travelers visiting or coming from Europe to plan their journeys, was also broadening the travel history requirement for the VTL to include the entire European Economic Area, it said.

The Singapore Airlines Group said Feb. 24 that it had posted its first quarterly profit in third quarter of fiscal year 2021-22 (April-March) since the onset of the coronavirus pandemic. The Group recorded a net profit of S$85 million ($ 62.4 million) for the Q3 ended Dec. 31.

Singapore's launch of VTL arrangements and its subsequent expansion, as well as the Group's "nimble response" in opening sales on almost all available routes, helped unlock pent-up demand during the year-end travel season, it said in a statement.

However, the Group cautioned that fuel prices have been trending higher and volatility is expected to persist in the months ahead. "The Group will continue to keep a tight rein on costs, while supporting the expansion of operations in line with demand."

Prices spiral higher

The escalation of the Russia-Ukraine crisis has propped up jet fuel prices dramatically. The upward pressure comes on the back of soaring international crude prices, with Brent breaching the $130/b mark recently as energy supply risks loom amid heightened sanctions imposed on Russia.

The benchmark Platts FOB Singapore jet fuel/kerosene outright price surged to a 163-month high at $148.40/b at the Asian close March 7, marking a day-on-day increase of $22.34/b, or 17.72%. It was last higher on Aug. 4, 2008, at $149.85/b, S&P Global data showed.

Asian jet fuel prices soar

Also reflecting the strength in the complex, the cash differential for cargoes loading from the main trading hub of Singapore jumped 46 cents/b day on day to plus $2.81/b to Mean of Platts Singapore jet fuel/kerosene assessment at the Asian close March 7.

Meanwhile, in the derivatives curve, the Q2-Q3 quarterly spread -- an indication of near-term sentiment -- was assessed at $14.19/b on March 7, near tripling from the start of the month when it was at $5.42/b on March 1.

"Airlines still face challenging operating conditions. The current escalating conflict in Ukraine may have a wider operational and economic impact on Asian airlines, while elevated fuel prices threaten to suppress earnings in an industry already struggling to survive," the Association of Asia Pacific Airlines Director General Subhas Menon said in AAPA's latest traffic report.

Aviation and travel data and analytics company Cirium's global head of consultancy Rob Morris said in a note, "The conflict in Ukraine and consequent airspace restrictions, coupled with, resultant economic uncertainty in Europe and beyond and generally higher oil and fuel prices globally, significantly threaten that demand recovery."

"It remains too early to model the scale of the impact but it is already clear that unless there is some swift resolution then 2022 will be a more challenging year than we expected," Morris added.