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Aviation recovery limping due to COVID-19 hurdles, but glimmer of hope persists

Highlights

Asian jet fuel demand fell 40% on year in 2020: Platts Analytics

Recovery to 2019 levels to take up to 5 years

Domestic travel shows more promise than international

Singapore — The post-pandemic pathway to aviation's recovery is littered with hurdles and recovery will take several years, with domestic travel likely bouncing back faster than international travel, which largely hinges on a successful vaccination rollout globally, industry experts and sources said at an industry event March 4.

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"It's unlikely we are going to get back to 2019 levels until probably 3-5 years and it really depends on how quickly you can ramp up the availability of flights and also how quickly demand comes back," Jonathan Pardoe, aviation fuel procurement and hedging specialist at Penthurst Limited, said at a panel discussion during the 8th S&P Global Platts Asian Refining Virtual Summit on March 4.

On the supply side, many airlines are reducing capacity or retiring aircraft, meaning they are not the same size as they were in 2019, he said.

Airlines have been moving out their older, less efficient aircrafts and bringing in more fuel-efficient ones, he said, adding that even if aviation activity returns to near pre-COVID levels, jet fuel demand may not increase at the same rate.

Despite the pandemic, aviation demand will continue to increase in the near term, driven by increasing prosperity in key regions including China, India and ASEAN, Praveen Bains, fuels and energy transformation analyst at the International Energy Agency, said at the same event.

"We project that the average annual growth will be about 3.5% from now to 2040, which is just about 1% lower than pre-COVID projections from some associations and companies such as Airbus, Boeing and ICAO," she said.

Business travel will also bounce back quicker than anticipated due to the importance of building face-to-face relationships, she added.

According to Bains, in terms of routes, domestic flights will be the first to recover ahead of international flights, a view that is also consistent with S&P Global Platts Analytics.

Alexander Yap, senior analyst at Platts Analytics, said separately that Asian jet fuel demand had plummeted about 40% year on year in 2020.

In Asia, China has seen the fastest recovery, but total Asia jet fuel demand was not expected to recover to 2019 levels until 2025, he said.

Meanwhile Jagannarayan Padmanabhan, director and practice leader at CRISIL Infrastructure Advisory, said that amid the pandemic, a breed of corporate travelers wanting to mix business with pleasure had emerged, presenting increased opportunity for airlines to tap this segment.

However, it will likely take international travel at least six more quarters to reach anything close to 2019 levels, making it imperative for the industry to adopt new technology and innovate, he said, noting that some of it was already happening.

One example was the travel pass being introduced by IATA, he said. This is a mobile application that helps travelers to store and manage their verified certifications for COVID-19 tests or COVID-19 vaccines.

Another example was India unbundling services to make tickets cheaper and travel more affordable, he added.

Lackluster prices, other considerations

On the pricing front, the M1/M2 FOB Singapore jet fuel timespread remained in a contango structure to be assessed at minus 25 cents/b at the 0830 GMT Asian close March 4. The M1/M2 timespread was last seen in a backwardated structure on Jan. 31, 2020, Platts data showed.

The FOB Singapore jet fuel/kerosene cash differential was hovering at a multi-month low. The cash differential was assessed at a near 4-month low of minus 56 cents to the Mean of Platts Singapore jet fuel/kerosene assessment March 3, and edged up 3 cents to MOPS minus 53 cents/b on March 4.

Prices remain subdued even though cargo demand was still quite supportive due to "online purchases and vaccine transportation," a market source said.

Numerous operational issues need consideration before an airline can resume operating at full capacity, Pardoe said.

"That involves planning for your aircraft, maintenance requirements, making sure that the fleet is ready to operate... Also checking the infrastructure, supply lines as well as considering new strategies for staff and customers regarding virus checks and possibly having vaccine proof before they can operate," he said.

Fuel supply contracts should be in place, because waiting until the last minute could create serious issues of availability amid supply constraints, he added.

Preserving cash was also very important, while airlines could also look at rationalization of the routes, Padmanabhan said.

"You could also look at a more collaborative approach on international sectors; get a lot more partnerships going so that you don't need to be there at all the places," he added.