Covid-19: Jet fuel refining margins turn negative as airlines ground fleets

Kerosene refining margins in Asia turned negative for the first time in more than a decade, as airlines continue to operate ground flights on international and domestic routes amid tight travel restrictions to contain the pandemic of coronavirus.

Profit margins already beaten are expected to come under further pressure as no concrete recovery time is in sight, according to commercial sources.

“Global air traffic is currently down about 40 to 45 percent, according to flight tracking sources, and further deterioration is expected in the coming weeks, as new flight restrictions and capacity reductions airlines will take effect, “said Richard Gorry, managing director of JBC Energy. Asia.

“We forecast a drop of 4.3 million barrels per day (bpd) in global demand for jets / keros in the second quarter to the second quarter of 2020 to reach only 2.5 million bpd, representing an annual drop of 5 , 6 million bpd (-70%) since the activity of air passengers is reduced to a minimum. “

Refining margins for kerosene plunged to minus 7 cents a barrel compared to Dubai crude on Monday, a level not seen in 11 years, according to data from Refinitiv Eikon which dates back to March 2009.

Also known as cracks, refining margins are the difference in value between the raw material, crude oil and the products produced by refineries. A negative margin for jet fuel refineries means that the refiners would lose money by producing aviation fuel at current prices, indicating that they would reduce jet fuel production or the overall throughput of the refineries.

“I think the cracks have not yet reached their worst level. Unless some vaccines are released soon, it looks like it will really take some time to recover,” said a Singapore-based trader, refusing to be identified because he was not authorized to do so. talk to the media.

Traders said the market would remain under pressure until the third quarter, assuming the spread of the virus would be contained by then.

Cracks for aviation fuel in Singapore, which exceeded $ 10 a barrel on March 10, have recently fallen and are now trading at their worst levels in at least twelve years, data from Refinitiv Eikon showed.

Australian fuel supplier Viva Energy said on Tuesday it expects demand for kerosene to drop by up to 90%, while its counterpart Caltex Australia forecasts similar demand to drop during flight cancellation periods .

Kerosene prices fell almost 54% in March alone, while cash spreads for aviation fuel in Singapore fell to their lowest level in more than a year.

Airlines ground flights, cost accounting for coronavirus shock

Airlines around the world are feeling the pain as the demand for travel wanes due to the coronavirus epidemic, cut flights, and scrapped financial forecasts.

Here is a list of responses from the world’s largest airlines:

AIR FRANCE-KLM

Air France-KLM announced on March 16 that it would park up to 90% of its largest airliners and slash services. The group said it had identified measures to save 200 million euros ($ 223 million) in 2020 and ways to cut capital spending by 350 million euros.

AMERICAN AIRLINES INC

American Airlines plans to cut 75% of its international flights until May 6 and block almost its entire jumbo jet fleet.

CHINA SOUTHERN AIRLINES

China Southern Airlines announced on March 18 a 73% drop in passenger capacity in February, saying the impact of the epidemic remains uncertain.

DELTA AIRLINES

Delta is reducing national capacity from 10% to 15% and international capacity from 20% to 25%, freezing hiring, offering voluntary leave options to staff and considering early retirement for older aircraft.

He had received more than 4,500 requests from flight attendants for unpaid voluntary leave in April, according to a March 14 article seen by Reuters.

DEUTSCHE LUFTHANSA AG

The German carrier reduced its long-haul capacity by up to 90% from March 17 and said it would operate only 20% of the planned intra-European flights.

Austrian Airlines, part of the Lufthansa group, has suspended all scheduled flight operations until April 19.

UAE

Emirates requests pilots and cabin crew to take leave without pay.

IAG

International Consolidated Airlines Group (IAG), owner of British Airways and Iberia, said it would reduce its flight capacity by at least 75% in April and May.

The group detailed the cost reductions, including a freeze on discretionary spending, reductions in working hours and a temporary suspension of employment contracts.

On March 17, the British pilots’ union BALPA said that British Airways should fire an unknown number of pilots.

JETBLUE AIRWAYS CORP

JetBlue, which derived its first quarter and 2020 profit forecasts, said it was adjusting its schedules between March and early May and was considering more flight cancellations.

JetBlue said the epidemic is expected to drop at least six percentage points from its total revenue per available seat mile in the first quarter.

QANTAS AIRWAYS

Qantas has suspended all international flights from Australia and approximately 60% of domestic traffic at least until the end of May.

The airline said it could no longer provide advice on the financial impact of the epidemic. Its CEO will receive no salary for the rest of the year, the management team will receive no bonus, and all staff are encouraged to take paid or unpaid leave.

QATAR AIRWAYS

Qatar Airways has laid off approximately 200 employees, all Filipino nationals based in Qatar.

SOUTHWEST AIRLINES CO

Southwest, which withdrew its previous financial forecasts for 2020, said it would reduce its capacity by at least 20% from April 14 to June 5.

VIRGIN ATLANTIC

Virgin Atlantic, the UK-based airline, said it would ground 75% of its fleet by March 26 and up to 85% in April points because it canceled more than thefts.

WESTJET AIRLINES

WestJet of Canada suspended all international commercial flights for 30 days effective March 22 and reduced its domestic schedule by 50%.

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