The international travel hubs of the Middle East are expected to retrace some of their pandemic-induced jet fuel demand losses in 2021, but the reliance of the region’s airlines on long-haul flights and the grounding of fuel-guzzling wide-body aircraft suggest the near-term upside will be limited.
As international flights gradually resume, S&P Global Platts Analytics expects the region’s jet fuel consumption to rise about 24% to 400,000 b/d in 2021 – but this would still be 34% lower than the pre-pandemic levels of 2019, with many travelers unable or unwilling to fly.
The UAE is the Middle East’s biggest jet fuel market, accounting for around 28% of regional demand, followed by Saudi Arabia, where the key pilgrimage market shrank due to stringent travel controls at Islam’s holiest sites. Saudi jet fuel demand will rise from 51,000 b/d in 2020 to 65,000 b/d in 2021, Platts Analytics forecasts.
“Restrictions on pilgrims traveling this year largely deteriorated… jet fuel demand in the Middle East region,” Platts Analytics’ Zhuwei Wang said. “If similar restrictions are implemented in 2021, that will continue to constrain jet fuel demand recovery.”
The Middle East lacks sizeable domestic travel markets and relies mostly on their hubs for international flights, which have been slow to rebound.
Next year’s recovery will be modest and will depend on domestic, regional, and some international routes that are linked to bubbles, said Muhammad Albakri, the International Air Transport Association’s regional vice president for Africa and the Middle East.
When the final 2020 data is analyzed, the Middle East will show the steepest drop in passenger demand among all regions, at 73%, according to IATA. For 2021, IATA expects passenger demand to increase 43% but remain 61% lower than 2019 levels.
Analysts do not expect jet fuel demand to return to 2019 levels before 2023, even with the roll-out of vaccines.
“There are more medium-term upside risks to this forecast due to faster vaccination, so jet fuel can recover to pre-virus levels faster, but in the short-term upsides are limited,” said Rystad oil market analyst Simen Nut Hansen Eliassen. “In 2021 demand will still stay below 2019 levels as airlines have mothballed some airplanes and laid off personnel, and returning to pre-virus capacity will take time.”
Changing flight patterns
The Middle East has three major hubs in Dubai and Abu Dhabi in the UAE and Doha in Qatar.
Closed borders, strict quarantine regulations in many countries, and shifting customer attitudes towards air travel – including a preference for non-stop flights instead of hub-and-spoke routes – are hobbling the region’s near-term prospects, analysts said.
However, with many airlines around the world reducing their schedules, the hubs could see a silver lining, said Richard Maslen, an analyst at CAPA – Centre for Aviation.
“Reduced networks mean there will need to be an increasing reliance on the connecting networks of airlines like Emirates Airlines and Qatar Airways via Dubai and Doha and similarly, but to a lesser degree, via the still shrinking Etihad Airways via Abu Dhabi, to meet traveler requirements,” he said.
Dubai-based Emirates, the world’s biggest operator for long-haul flights in 2019, saw its passenger traffic plunge 95% in its first half of its fiscal year starting April as COVID-19 restrictions destroyed aviation demand.
Given the region’s dependence on long-haul flights, economic recoveries in Europe and Asia will be critical, said Audrey Dubois-Hebert, a consultant with FGE Energy.
The region’s biggest carriers usually use their jumbo aircraft, such as the Airbus A380 and Boeing 777, on these major routes.
Positioning on prices
Emirates, which has the world’s biggest fleet of A380s and Boeing 777s, is even flying these aircraft to regional destinations such as Cairo and Amman amid a drop in international flights, although Dubois-Hebert said this is an unsustainable strategy that will likely result in the retirement or shelving of these massive planes.
“The pandemic magnified an important flaw with the A380s, which were already on the way out, namely their challenge with fuel efficiency,” she said. “With potentially fewer travelers on board in the coming years [and] a lower load factor, many airlines operating very large aircraft will consider downsizing their fleet due to the design of these planes.”
For example, the double-deck A380 consumes about 12 tons/hour of jet fuel, compared with a Boeing 787-9 consuming less than 6 tons/hour, she added.
For now, the expected bounce in jet fuel demand in 2021 will help lift prices in the region, with the Platts Gulf jet premium, which dipped to minus $1.4/b on April 30, potentially hitting a high of $1/b by the end of next year, according to traders.
One UAE jet fuel trader said many refineries plan to start the year with reduced runs, so if the global economy recovers quickly, demand could quickly outstrip supply.
“It will take some time for the supply to ramp up [and] this is all supportive of a better premium,” the trader said.