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Singapore Airlines' Oct passenger demand plunges 98%; jet fuel struggles to find support

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Platts Global Alert - Oil

Singapore Airlines' Oct passenger demand plunges 98%; jet fuel struggles to find support

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Onerous travel restrictions suppress demand for flights

Poor sentiment weighs on jet fuel prices

Singapore-Hong Kong travel bubble brightens outlook

Singapore — In the prolonged battle against COVID-19, the Singapore Airline group's passenger carriage demand plunged 98.1% year on year in October amid tepid demand on the back of the surge in COVID-19 infections in the Asia-Pacific region, leading to the continued implementation of strict border controls. As a result of these onerous travel restrictions still in place, jet fuel values were pressured lower.

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The local flagship carrier announced on Nov. 17 that the plunge in the overall passenger carriage, measured in revenue passenger-kilometres, caused the group passenger load factor to come in at 15.8% in October. This marked a year-on-year decline of 68.6 percentage points.

Jet fuel prices in limbo

The coronavirus-led demand carnage has trapped jet fuel prices in a limbo, with the cash differential and market structure stuck in discounts for prolonged periods.

At the 0830 GMT Asian close on Nov. 17, the FOB Singapore jet fuel/kerosene cash differential was assessed at minus 49 cents/b to the Mean of Platts Singapore jet fuel/kerosene assessments. The cash differential has remained in discount territory since Feb. 28, and is 86 cents/b lower since the beginning of the year when it was assessed at MOPS jet fuel/kerosene assessments plus 37 cents/b, Platts data showed.

In the derivatives market, the front-month December-January swap spread remained in a contango structure and was assessed at minus 38 cents/b on Nov. 17. A contango means that jet fuel prices are weaker and unable to command higher values at the prompt. The M1-M2 swap spread was last in a backwardated structure on Jan. 31 at plus 48 cents/b, Platts data showed.

Further along the forward curve, pessimism is expected to persist with the jet fuel/kerosene Q1-Q2 quarterly spread in negative territory of minus $1.28/b on Nov. 17, Platts data showed.

"Demand for air travel remained tepid as border controls and travel restrictions remained in place in most countries to curb the spread of COVID-19," the airline group said.

Travel bubble buoys sentiment

Nevertheless, the SIA group said there were positive developments in October related to the reopening of borders, including the announcement of the Singapore-Hong Kong air travel bubble, which is slated to start Nov. 22.

Under this new travel bubble arrangement, citizens traveling between the two countries will not need to be placed under a 14-day quarantine, but they would still be subjected to certain conditions, like testing negative for COVID-19.

"This [travel bubble] is a hugely encouraging development and an important first step in the return of regular international air travel to and from Hong Kong. Cathay Pacific is ready to fly passengers safely and securely between Hong Kong and Singapore under the new travel bubble," Cathay Pacific's group chief customer and commercial officer, Ronald Lam, said.

Apart from the travel bubble, the SIA group has also added other cities from which passengers can transfer, through Singapore, to other destinations.

"In addition to SIA launching non-stop services to New York, SIA and SilkAir will also reinstate flights to Brunei, Fukuoka, Male, and Shenzhen between November 2020 and January 2021. Scoot will add flights to Melbourne between November 2020 and December 2020," the group added.