Asian jet fuel refining margins have turned negative for the first time in over a decade as airlines continue to ground flights on international and domestic routes amid stringent travel restrictions to contain the coronavirus pandemic.
The already-battered profit margins are expected to come under further pressure as there is no concrete recovery timeframe in sight, trade sources said.
"Global air traffic is down by about 40-45% at present, according to flight tracking sources, with further deterioration expected over the coming weeks as more flight restrictions and airline capacity reductions take effect," said Richard Gorry, managing director at JBC Energy Asia.
"We expect global jet/kero demand to fall by 4.3 million barrels per day (bpd) quarter-on quarter in Q2-2020 to just 2.5 million bpd, representing a year-on-year decline of 5.6 million bpd (-70%) as air passenger travel activity is reduced to a minimum."
Refining margins for jet fuel plunged to minus 7 cents per barrel over Dubai crude on Monday, a level not seen in the last 11 years, according to Refinitiv Eikon data that goes back as far as March 2009.
Also known as cracks, refining margins are the difference in value between the raw material, crude oil, and the products churned out by refineries. A negative jet fuel refinery margin means refiners would lose money by producing the aviation fuel at current prices, indicating they will either reduce jet fuel output or lower overall refinery throughput.
"I think the cracks haven't gone to their worst yet. Unless some vaccines come out soon, looks like it will really take some time to recover," a Singapore-based trader said, declining to be identified as he was not authorized to speak to media.
Traders said the market would remain under pressure until the third quarter, assuming the spread of the virus is contained by then.
Cracks for the aviation fuel in Singapore, which were above $10 a barrel as recently as March 10, have plummeted recently and are currently trading at their worst levels in at least twelve years, Refinitiv Eikon data showed.
Australian fuel supplier Viva Energy said on Tuesday it expects jet fuel demand to plunge by up to 90%, while its peer Caltex Australia forecast a similar demand drop during the period of flight cancellations.
Jet fuel prices are down nearly 54% in March alone, while cash differentials for the aviation fuel in Singapore have slumped to their lowest levels in over a year.
Airlines ground flights, count mounting costs of the coronavirus shock
Airlines across the globe are feeling the pain as travel demand withers because of the coronavirus outbreak, scrapping flights and ditching financial forecasts.
Below is a list of how the world's biggest airlines have responded:
Air France-KLM said on March 16 it would park its biggest airliners and slash services by up to 90%. The group said it had identified measures to save 200 million euros ($223 million) in 2020 and ways to cut its capital expenditure by 350 million euros.
AMERICAN AIRLINES INC
American Airlines plans to cut 75% of its international flights through May 6 and ground nearly all its widebody fleet.
CHINA SOUTHERN AIRLINES
China Southern Airlines reported on March 18 a 73% drop in February passenger capacity, saying the impact from the epidemic remains uncertain.
DELTA AIR LINES
Delta is cutting domestic capacity by 10% to 15% and international by 20% to 25%, freezing hiring, offering voluntary leave options to staff and looking at early retirement of older aircraft.
It had received over 4,500 requests from flight attendants for voluntary unpaid leave in April, according to a March 14 paper seen by Reuters.
DEUTSCHE LUFTHANSA AG
The German carrier cut long-haul capacity by up to 90% from March 17, and said it would only operate 20% of planned intra-Europe flights.
Austrian Airlines, a part of the Lufthansa group, has halted all regular flight operations until April 19.
Emirates is asking pilots and cabin crew to take unpaid leave.
International Consolidated Airlines Group (IAG), the owner of British Airways and Iberia, said it would cut its flying capacity by at least 75% in April and May.
The group detailed cost cuts including a freeze on discretionary spending, working hours reductions and a temporary suspension of employment contracts.
On March 17, the UK pilot union BALPA said that British Airways was due to make an unspecified number of pilots redundant.
JETBLUE AIRWAYS CORP
JetBlue, which pulled its first-quarter and 2020 earnings forecast, said it was adjusting schedules between March and early May and was considering more flight cancellations.
JetBlue said the outbreak was expected to make at least a six percentage-point dent in its total revenue per available seat mile in the first quarter.
Qantas has suspended all international flights from Australia and around 60% of domestic traffic at least until end of May.
The airline said it could no longer provide guidance on the outbreak's financial impact. Its CEO will take no salary for the rest of the year, the management team will receive no bonuses and all staff are encouraged to take paid or unpaid leave.
Qatar Airways laid off around 200 employees, all Filipino nationals based in Qatar.
SOUTHWEST AIRLINES CO
Southwest, which has withdrawn its previous 2020 financial guidance, said it would reduce capacity by at least 20% from April 14 through June 5.
Virgin Atlantic, the UK-based airline, said it would ground 75% of its fleet by 26 March and by up to 85% at points in April, as it cancelled more flights.
Canada's WestJet suspended all commercial international flights for 30 days from March 22 and reduced its domestic schedule by 50%.