Jet-A Oversupply Beneficial to Cargo Airlines

Oil has been to record lows during the last few weeks. This has been going on simultaneously along with the economic downturn due to the Coronavirus (COVID-19) outbreak. It has been a serious of events which have lead us to where we are currently today with out oil prices and supply.

As the initial alarm of the virus spread through the Asian region few airlines started to fly less into those areas. They began to fly different routes around the region to still be able to control levels of demand. At the time we were unsure of the severity of the situation. As time when on and travel bans began to take place to certain countries many airlines that were predominately based out of Asian significantly saw a decrease in traffic and as a result less fuel was being purchased.

Overtime more airlines began to suspend routes and ground aircraft to where now hundreds of aircraft around the world are parked on runways, taxiways, aprons, and grass strips as individuals around the world are being encouraged to stay at home.

Consider that Commercial Airlines which are the largest consumer of Jet-A have cut down their flights by nearly 80% in some locations you would anticipate that the oil production companies would also reduce the speed of production to match although the latest reports show they have only decreased production by 20%.

Regardless of request made by OPEC the largest oil production companies in the world continue to push the market as they continue to produce millions of barrels a day just to be sent off to sit in reserve. This has been one of the leading factors contributing to the price of the barrel dropping significantly.

Lowest Demand Since 2001

In a recent interview Ben Brockwell, co-founder and executive director of strategic content at the market analysis Oil Price Information Service (OPIS) spoke on the recent oversupply of Jet-A primarily due to the breakout of COVID-19. He stated that there are some of the lowest demand levels since since the aftermath of the 9/11 terror attacks that date back to 2001.

Airlines in the United States alone would consume about 1.7 million barrels per day (B/D). That is now down to 1.3 million b/d, and even that number is high because it reflects barrels being produced and going into storage and not into aircraft for consumption.”

Ben Brockwell

In a statement made by the Department of Energy, over the past month jet fuel consumption is down 16.4 percent, and year-over-year is showing a decline of nearly 8 percent. As time goes on without a cure, the projects are those number may increase.

IHS Markit, our parent company, estimates that U.S. jet fuel demand in April will fall to 607,000 b/d compared to 1.75 million b/d the same time last year,” Brockwell told AIN. “That is a huge drop, and the country is running out of space to store fuel.” He added that in response, the U.S. production of jet fuel has dropped to 1.12 million b/d. “Those numbers rival the cuts made back in September 2008 during the Great Recession, and are as low as at any time following 9/11.”

The Cost Benefits to Cargo Airlines

Although commercial airlines are no longer flying sold out B-787 Dreamliners on International Flights at the time being, cargo airlines are able to take advantage of the incredible costs savings.

The supply chain network for our supplies, products, goods, building materials, food, fuel and more all required the unique network of logistics and transportation elements. Should any piece of the network be disturbed it can lead to disruptions in service.

Cargo Airlines are providing the responsive service needed in a time where vital items are required as soon as physically possible. Being able to overnight a flight with your precious cargo is a service well worth the price when time is of the essence.

Many commercial airlines have had to restructure some of their operations and aircraft to be able to compete in the cargo industry. Struggling to remain profitable during a time of no flying, commercial airlines operate cargo only flights for the first time in decades.

The Cargo Airlines that have primarily focused their attention on the freight instead of the passengers are experiencing a different kind of problem. Operating larger aircraft designed for carry payloads they require significant amount of fuel for operations.

Back near the end of 2019 Jet-A prices would range from about $3.5-$5 a gallon. To fill up a B-747 with lets say about 30,000 Gallons before and additional taxes or fees would cost somewhere between $105,000 – $150,000. After doing this a few times a day one can begin to see where it can be expensive operating a cargo airline. Much of the costs are going directly towards the fuel that is used in flight.

Today depending on the vendor that you are using in the United States, some location have been under $1. The same aircraft that was a minimum 6 figures to fill up can now be filled with the same amount of fuel but for just $27,000. This is a 82% savings in operating costs on the same amount of fuel.

With the cost saving being significant this makes accessibility to suppliers easier and thus products are now able to arrive to their destination at faster rates. As a result it would in turn help drive down the cost of products to consumers which is something that would greatly benefit a vast majority of individuals who are currently struggling with unemployment.

Moving forward we can look to seeing more cargo being shipped with airlines as compared to travelers. Until we are able to see a cure in the market for individuals we may not see an increase in travelling unless the individual is absolutely required to travel. Regardless of the travel conditions for the masses goods need to continue to be shipped around the world leaving cargo airlines in a strong position to thrive from this economic conflict.

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