The air travel industry is at a critical inflection point. Steady vaccination rollouts and falling infection rates in most Western economies are allowing commercial travel to resume after more than a year of downtime. Rebooked holiday trips, postponed family reunions, meeting newborn kids, weddings, attending memorial services for loved ones are the new norm– All that pent-up travel demand is expected to trigger a 30% surge in jet fuel demand during the summer compared to first quarter levels.
Yet, jet fuel remains one of the biggest weak links in the bullish oil thesis, with a full recovery of aviation fuel demand to pre-pandemic levels not expected to arrive until 2023.
According to the International Energy Agency (IEA) summer air travel activity will mainly be dominated by short-haul flights, which are expected to account for almost two-thirds of the total fuel used by the sector. Unfortunately, this category of flight, on average, uses ~35x less fuel than long-haul flights.
“You see the passenger numbers are recovering, but they are flying shorter distances, so the relationship between the passenger number and the jet fuel demand is distorted. For the full recovery, we need international travel to recover as well, and for that we have to reach a certain level of vaccination, not just in a couple of countries,” Cuneyt Kazokoglu, head of oil demand analysis at FGE, has told Reuters.
Jet fuel demand
According to the U.S. Energy Information Administration(EIA), jet fuel demand is projected to reach 1.47 million barrels a day during the third quarter, up from 1.13 million in the first quarter and more than 50% higher than a year earlier. Related: A Scorching Hot Middle East Summer Could Send Oil Prices Soaring
Global jet fuel demand is expected to clock in at 5.8 million barrels per day (bpd) in the current year, almost 30% higher than 2020 levels, but well below the 8 million bpd of 2019 before the pandemic struck.
Despite the ongoing buzz, there is a huge disparity in flight bookings, with many countries with successful vaccine programs remaining reluctant to allow unlimited travel.
Last month, Britain allowed international travel to resume from May 17 but has limited the number of destinations open for quarantine-free holidays to 12 countries.
U.S. passenger numbers have been surging while those in India and Japan have been falling. According to the TSA, traveler throughput in the United States on 6th June 2021 clocked in at 1.67 million compared to 942,000 at the beginning of the year. However, that number is considerably lower than 2.27 million recorded a year ago.
Meanwhile, China stands out as its flight capacity has even exceeded pre-pandemic levels.
Unfortunately, the same cannot be said about business traffic.
While domestic leisure traffic is nearly back to 2019 levels for many U.S. airlines, business traffic remains nearly 80% below pre-pandemic levels, a major factor holding back a broader…
Read More: Jet Fuel Demand Poised For A 30% Surge During Summer