Strong dollar, visa delays help keep 2022 jet fuel volume still below pre-pandemic levels

As of late 2022 jet fuel volumes have yet to recover to pre-pandemic levels as corporate travel and long-distance trips still need to come back to where they once were while airlines, mostly those outside the U.S., face the challenge of a strong dollar and longer U.S. visa-processing times.

Image courtesy of Dominador - Pixabay

U.S. airlines have reported healthy profit on lower volumes compared with the pre-pandemic 2019, in part due to higher prices, and plan to keep lean even when more activity is recovered.

“We're not operating at Delta anywhere close to what we used to operate in the past, and that's why the demand of our product and the pricing for the product has been so strong,” said Ed Bastian, CEO at Delta, discussing third quarter earnings on Oct. 13, according to a transcript of the call by Motley Fool.

“This summer, we operated roughly 15% below where we were in the summer of 2019. And we said our goal is for next summer to close that gap and have our network fully restored. So I think that's a ballpark number of 15%. That doesn't mean we're going to have 15% more people or 15% more planes,” he said.

“It's really using the assets and the people we already have more efficiently,” he said.

Delta must honor a “sizable” number of credits that won´t expire until 2024 that customers received during the pandemic, when travel plans had to be canceled.

Changing demand profiles

According to the CEO of American Airlines, Robert Isom, leisure and business revenue remains “very strong,” surpassing the 2019 levels in the third quarter. This is a result of changing trends like remote work, he said.

“Demand for small- and medium-sized businesses and customers traveling for a combination of business and leisure continue to outpace the recovery of managed corporate travel,” he said while discussing third-quarter earnings on Oct. 20, according to a transcript of the call by Motley Fool.

Challenges ahead for the airline industry, as well as jet fuel demand, include limited pilot availability and lengthy training. Delta is hiring in 2022 up to 2,000 pilots, the most it has ever hired in any year.

Visa delays, high fuel prices

Travelers to U.S. conferences have taken one year for a visa process to enter to the U.S. and this hurts the recovery of travel, Isom said.

“It's not like we're limiting ourselves just on airfares and ticket prices and airline revenue, those people spent $120 billion when they came into the U.S.,” he said.

High jet fuel prices have also created headwind, particularly for foreign companies.

According to jet fuel price data published in the website of IATA (International Air Travel Agencies), prices as of Oct. 14, 2022 were about $3.43 per gallon with prices in the Americas the highest at about $3.70 per gallon in Asia and Oceania the lowest at $3.05 per gallon.

The recovery of jet fuel demand and international travel from the 2020 lows had starter in 2001 but was hurt in December 2021 with the Omicron variant that led to a tightening of travel security protocols. In December 2021, amid fears of a spread of new pandemic variants, the U.S. imposed restrictions for entry or re-entry such as showing proof of negative test results within a day for Covid-19.  

Strong dollar

With rising interest rates the U.S. dollar has appreciated in relation to many currencies.

“For airlines, the stronger U.S. dollar adds another layer of cost, on top of high inflation in general and high jet fuel prices in particular. All U.S. dollar-denominated costs rise for everybody whose revenue is in another currency. Similarly, the debt burden increases for all non-dollar-based entities,” Iata said in an analysis shared on Oct. 14, 2022.

LATAM, setup in 2015 and which started decades ago as Lan Chile and then merged with a former rival, Brazil´s Tam, to become the biggest in Latin America, is working to come out of Chapter 11.

LATAM announced in a press release from Santiago on Oct. 14 that it “plans to exit its Chapter 11 proceeding in the United States on November 3, which it entered in May 2020 after the strong impact of the pandemic.”

Earning more with less

Alaska Air Group, which held its earnings call on Oct. 20, reported its highest quarterly revenue ever in its history and this despite what it described as “exceptionally high fuel prices.”

Andrew Harrison, chief communications officer, said the company posted its highest recorded revenue in its history: $2.8 billion.

“This revenue performance, up 18% versus 2019 on 7% less capacity, resulted in very strong unit revenue performance,” he said.

Unit revenues increased 27% compared with 2019, he added, according to a transcript of the call by Motley Fool.

High volatility

Published price data shows jet fuel price volatility has increased considerably since the pandemic. Jet fuel is used by both commercial and military aircraft.

The spot price FOB for U.S. Gulf Coast kerosene-type jet fuel was $4.12 per gallon in June 2022, its highest monthly level so far in 2022. That was the highest monthly average in a graph by the EIA (Energy Information Administration) showing FOB spot Gulf Cost pricing since 1990.

The average price of jet fuel fell to $3.27 per gallon in September 2022, according to the EIA.  Prices were still much higher than Sep. 2021 levels of just $2 per gallon. The Sep. 2021 price was double the price compared with the same month a year earlier.

The Sep. 2019, pre-pandemic price was $1.87 per gallon, down from $2.19 in Sep. 2018. Prices were about $1.8 per gallon in 2017.

According to a Sept. 2022 report issued by the Bureau of Transportation Statistics, part of the U.S. Department of Transportation, the total U.S. airlines July 2022 fuel consumption was down about 10% from pre-pandemic 2019.

Some refiners had anticipated a recovery of jet fuel demand by late 2022. Jet fuel was arguably the fuel most impacted by the pandemic´s restrictions. 

By Renzo Pipoli