ANALYSIS: Latin America jet fuel demand set for slow coronavirus rebound
Houston (Platts) – 04Jun2020/1157 am EST/1557 GMT
- LatAm jet demand expected to fall 14.47% in 2020
- Brazil jet fuel sales down 80.15% in April
- LATAM, Avianca file for Chapter 11 bankruptcy protection
As Latin American countries begin to pull back coronavirus-related restrictions, substantial damage to the airline industry and the economy overall have spurred uncertainty about the future of jet fuel in the region.
Most Latin American countries implemented lockdowns with different degrees of severity and success to contain the virus. While Argentina and Colombia implemented strict measures, including far-reaching travel bans, Brazil and Mexico took a piecemeal approach which resulted in inconsistent and reactionary travel ban policies.
The effect on the regional airline industry has been devastating, as airlines have struggled to generate sufficient revenue to sustain operations. Monthly revenue passenger kilometers – the number of passengers multiplied by the distance traveled, often used to signify passenger traffic in the aviation industry – fell to approximately 50 billion across the globe in April, according to International Air Transport Association (IATA) data. With Latin America accounting for 5.1% of the market, April RPKs for the region were estimated around 2.55 billion. This marked a 32.1% decline from the start of the year and a staggering 96% decline from April 2019.
Latin American jet fuel demand this year was set to grow by 1.97% from 385,000 b/d in 2019, according to Platts Analytics projections in January. But 2020 demand is now set to fall by 14.47% on the year to around 329,000 b/d, according to updated projections in April.
On May 26, in line with predictions made by airlines, lobbyists and other market sources, LATAM, Latin America’s largest airline group, filed for Chapter 11 bankruptcy protection, citing “exceptional and unprecedented circumstances that caused the collapse of global demand.”
LATAM said it was currently operating at approximately 5% of its passenger flights. Avianca, the oldest and second-largest regional airline, had similarly filed for Chapter 11 bankruptcy protection on May 10.
In Argentina, the strict travel ban resulted in an “imminent and substantial risk” to thousands of jobs, according to a joint statement published by several airline trade groups, including IATA and the Latin American and Caribbean Air Transport Association (ALTA). By April, Argentina jet fuel sales dropped to 1,707 barrels in April, down 91.55% from the same month last year, according to government data.
RELAXED APPROACH BRINGS SAME RESULT
Brazil, which took a far more hands-off approach in its coronavirus response, enacted an international travel ban in late May, currently scheduled to last through June 21. Brazilian jet fuel sales dropped to 531,891 barrels in April, down 80.15% from March and the lowest total since at least January 2000, according to the National Petroleum Agency.
Brazil’s jet demand should rise to 78,000 b/d in June, a 39% decline from the start of the year but up 66% from May levels, according to S&P Global Platts Analytics. A near – total recovery for Brazilian demand is expected in January 2021, with 96% of pre-coronavirus demand expected at 123,000 b/d.
Brazil’s jet demand recovery is mostly representative for all Latin America. During its first-ever virtual Aviation Fuel Forum held in May, IATA estimated that a global international flight recovery is expected between 2023 and 2024. Its outlook for domestic air travel was slightly more optimistic, with expectations for recovery around 2022.
“The industry organizations are working on developing the standards to be implemented in a harmonized manner regionally and globally in order to start operating even more safely,” ALTA CEO Jose Ricardo Botelho said June 3.
Platts Analytics expects the worst of demand destruction has passed in Mexico, with June demand up 27% on the month to 57,000 b/d. While demand is expected to approach pre-coronavirus levels of 90,000 b/d at the start of 2021, an entire recovery is not expected until December 2021.
This represents the majority of Latin America beside three countries – the Dominican Republic, Honduras and Jamaica – where demand should weaken slightly in July, according to Platts Analytics.
Though IATA data shows Latin America accounts for just 5% of global passenger traffic, its geographic proximity has been crucial for the US aviation industry as a key destination for jet fuel exports. More than half of US jet fuel exports over the past five years were shipped to Latin America, with nearly 200 million barrels making their way to the region between 2015 and 2019, according to US Energy Information Administration data.
– Platts Global Alert –