Jet fuel demand holds clues to world economy’s health

The Middle East’s biggest airline, Emirates, was able to fall back on its large cash reserves and the financial reputation it has in the international banking community, as well as the support it received from the Dubai government. (Getty Images)
1 / 3
The Middle East’s biggest airline, Emirates, was able to fall back on its large cash reserves and the financial reputation it has in the international banking community, as well as the support it received from the Dubai government. (Getty Images)
Other airlines are not in Emirates’ favorable cash position. Dozens have gone bankrupt during the pandemic. (Getty Images/AFP )
2 / 3
Other airlines are not in Emirates’ favorable cash position. Dozens have gone bankrupt during the pandemic. (Getty Images/AFP )
A top priority of airlines now is to ensure greater fuel efficiency to cut down cost. (Getty images/AFP photo)
3 / 3
A top priority of airlines now is to ensure greater fuel efficiency to cut down cost. (Getty images/AFP photo)
Short Url
Updated 01 February 2021

Jet fuel demand holds clues to world economy’s health

Jet fuel demand holds clues to world economy’s health
  • Demand for jet fuel is a key indicator of the aviation industry’s condition and the GCC bloc’s economic health
  • Regional airlines like Emirates and Qatar Airways were super-connectors in what is now a disconnected global economy

DUBAI: The long-awaited global economic recovery is awaiting take-off — in a literal as well as a figurative sense. All the experts, from august institutions like the IMF down to the smallest of small and medium-sized enterprises, are agreed that 2021 will see a significant recovery from the lockdown recessions of last year. But one factor above all others is still casting a shadow over the pace and strength of that turnaround: the global aviation business.

Fewer passengers traveling for business or for leisure has a direct effect on the global economy. Less air cargo flying around the world directly impacts world trade and business activity. Some 90 million people were employed in aviation around the world in 2019, and the sector comprised nearly 5 percent of the global economic growth, according to figures from trade organizations.

If global aviation was a country, it would have a GDP of $3.5 trillion, and would be as big as the Netherlands.

But that was before the pandemic effectively stopped the world flying in the spring of 2020. Ranjith Raja, oil research manager for the Middle East at data provider Refinitiv, told Arab News: “COVID-19 has impacted almost all industries globally, but the airline industry has been one of the worst hit sectors. With rising skepticism surrounding traveling and global lockdowns, the passenger industry came close to a standstill at one point.”

For the Middle East, the aviation-business collapse has been a double whammy. Airlines like Emirates and Qatar Airways are super-connectors in a global economy that has become increasingly disconnected during the pandemic.

But they and other global airlines are also big consumers of the region’s most valuable commodity — crude oil, in the form of highly refined jet fuel. In a normal year, aviation would account for nearly 10 per cent of global oil demand. That was reduced dramatically in 2020.

The statistics tell the depressing story. By the end of April, airlines across the world had virtually ceased passenger operations. The aviation industry’s key metric — revenue passenger kilometers (RPKs) or the amount of cash-generating flying going on in the world — crashed by more than 94 per cent — unprecedented since the numbers were first calculated in 1990.

Even a mild recovery over the summer months was deflated by the resurgent second wave of the disease toward the end of the year. By November, global passenger traffic was still nearly halved from the previous year. The result has spelt financial disaster for the aviation industry.

"Financially, 2020 will go down as the worst year in the history of aviation. On an average, every day of this year will add $230 million to industry losses. In total, that is a loss of $84.3 billion. It means that—based on an estimate of 2.2 billion passengers in 2020—airlines would lose $37.54 per passenger,” said Alexandre de Juniac, chief executive of the International Air Transport Association.




In a normal year, aviation would account for nearly 10 per cent of global oil demand. That was reduced dramatically in 2020. (Shutterstock)

To take the example of the Middle East’s biggest airline, Emirates, this has had a dramatic effect. With passenger numbers down by three quarters in the autumn, revenues fell 75 percent in the first half of 2020-21 year, leading to a loss of $3.8 billion for the first time in three decades. The airline had cut at least a quarter of its staff by the midway point of the financial year.

It was able to fall back on its big cash reserves, built up during the good years, as well as the sound financial reputation it has in the international banking community and — not least — the support of the Dubai government, which recognized Emirates’ vital contribution to the economy with a $2 billion injection.

Sheikh Ahmed bin Saeed Al-Maktoum, the chief executive, called the downturn “unprecedented”, but added: “We expect a steep recovery in travel demand once a COVID-19 vaccine is available, and we are readying ourselves to serve that rebound.”

Other airlines are not in Emirates’ favorable cash position. Globally, dozens have gone bankrupt during the pandemic, while all have had to reassess their long-term strategies. A top priority here is to ensure greater fuel efficiency, which in turn means smaller, more economical aircraft using less jet fuel.




A top priority of airlines now is to ensure greater fuel efficiency to cut down cost. (Getty images/AFP photo)

The long-term trend in aviation fuel consumption will inevitably be downwards, not just as jet engines become more efficient, but also as new forms of propulsion are developed. The European aerospace giant Airbus announced at the height of the aviation collapse that it was working on a hydrogen-fueled engine, and others are following suit with similarly innovative technologies.

But those developments are some way in the future. For now, the oil and aviation industries will have to just get along together in a vastly different market, prone to greater volatility.

This was demonstrated to acute effect at the height of the pandemic crisis as the air fleets were grounded. Asia gets most of the crude for their jet fuel from the Middle East, mainly from Saudi Arabia and the UAE, but because the early lockdowns were most intense in Asia, prices of these products crashed as demand dried up.

Europe — which also sources its aviation fuels from the Middle East and which at that stage was confident it would ride out the COVID tide — took advantage of the cheap prices to fill up on jet, according to data from Refinitiv.

As European airlines were grounded in their turn as the pandemic hit hard, this exacerbated the global oil glut, the effects of which are still being felt. “In the absence of real demand for the fuel, the imported volumes into Europe ended up in storage, which in turn swelled the inland and floating storage,” said Raja.

That trend has rebalanced towards Asia as economic recovery accelerates there, especially in China, and as Europe’s pandemic problem surges and lockdowns are reimposed. But it shows the importance of jet fuel as a key component for overall oil demand, still the most important economic indicator for Gulf economies.




Other airlines are not in Emirates’ favorable cash position. Dozens have gone bankrupt during the pandemic. (Getty Images/AFP )

The analysts are continuing to assess the full damage for 2020 to the fuel market, and calculating when it might begin to recover. The International Energy Agency said recently that low demand for jet fuel will make up the lion’s share of the shortfall in demand for oil this year.

Oil traders are taking a hard-nosed view on when demand for jet fuel will return to pre-endemic levels. Mike Muller, head of Asian operations for the world’s largest independent oil trading firm Vitol, recently told a forum, organized by the information consultancy Gulf Intelligence, that much depended on the speed of the roll out of vaccines.

He said that a recovery in Asian demand for jet fuel would only begin in the third quarter of this year, when immunization had reached a significant number of people. “"By then it is likely that we'll have sufficient immunization or herd immunity, or a combination of people who have suffered and already had the virus and who have been immunized,” Muller said.

“That is my hope, but I do think it will take until late in the third he quarter. Looking at bookings for holidays in Europe, the Americas and Asia, it’s all flat on its back still.”

Recovery cannot happen fast enough, for the airlines and for the regional economies that depend on demand for jet fuel, among other oil products, as their main revenue streams. The global economy will only fly again when the world’s airlines are also back in the air.

______________

Twitter: @frankkanedubai


Dubai completes first phase of e-commerce free zone

Dubai completes first phase of e-commerce free zone
Updated 38 min 24 sec ago

Dubai completes first phase of e-commerce free zone

Dubai completes first phase of e-commerce free zone
  • It includes 470,000 square feet of real estate
  • The e-commerce sector in the Gulf is booming with the forced closure of bricks and mortar shops during the pandemic giving the industry a further boost

DUBAI: The first phase of a new Dubai fee zone dedicated to e-commerce has been completed.
It includes 470,000 square feet of real estate.
The 3.2 billion dirhams ($871 million) Dubai CommerCity project also includes 145,000 square feet of e-commerce logistics units and warehouses in a cluster managed and operated by Hellmann Worldwide Logistics and DHL.
It has leased 51 percent of the logistics warehouses to companies operating across IT, fashion, jewelry and electronics.
“The launch of Dubai CommerCity aims to lead the future of e-commerce business in the region,” said Sheikh Ahmed Bin Saeed Al-Maktoum, chairman of the Dubai Airport Freezone Authority. “The project has been thoroughly studied not only to provide foundational solutions, but also to stimulate and support business and prosperity at a time when the sector is going through peak growth.”
The e-commerce sector in the Gulf is booming with the forced closure of bricks and mortar shops during the pandemic giving the industry a further boost.
The free zone provides opportunities for manufacturers, distributors and global e-retailers while offering tax and investment incentives, it said.
It is divided into three main clusters — Business, Logistics and Social.


Emirates NBD, Etihad Credit Insurance ink deal to ease trade finance access for UAE businesses

Emirates NBD, Etihad Credit Insurance ink deal to ease trade finance access for UAE businesses
Updated 44 min 53 sec ago

Emirates NBD, Etihad Credit Insurance ink deal to ease trade finance access for UAE businesses

Emirates NBD, Etihad Credit Insurance ink deal to ease trade finance access for UAE businesses
  • The deal will help the UAE lender to reduce any risks that may be associated with credit facilities

DUBAI: UAE export credit company, Etihad Credit Insurance (ECI), has signed an agreement with Emirates NBD to improve liquidity of UAE exporters by easing their access to credit facilities.
The deal will help the UAE lender to reduce any risks that may be associated with credit facilities, so businesses can pursue export and expansion opportunities, according to a joint statement.
More than 80 per cent of world trade relies on trade finance, ECI’s chief Massimo Falcioni said, and the agreement will allow Emirates NBD to offer innovative financial solutions to their clients.
Governments in the Gulf have been investing in strengthening local businesses as a strategy to recover from the COVID-19 pandemic, and to gradually veer away from oil-dependence.

 

 


Italian fashion brand Diesel launches online shopping platform in KSA, UAE

Italian fashion brand Diesel launches online shopping platform in KSA, UAE
Updated 18 April 2021

Italian fashion brand Diesel launches online shopping platform in KSA, UAE

Italian fashion brand Diesel launches online shopping platform in KSA, UAE
  • The website will feature new collections of the fashion line, as well as exclusive deals for online shoppers

DUBAI: Italian fashion retailer Diesel has launched its own e-commerce platform for customers in Saudi Arabia and the UAE, the company said on Sunday.
The website will feature new collections of the fashion line, as well as exclusive deals for online shoppers. It will also offer free shipping for customers in both countries.
Diesel has been in the market for four decades and is known for its denim and casual fashion offerings.
The COVID-19 pandemic has created huge demand for online shopping in the Gulf, with many retailers accelerating their digital efforts to take advantage of it


Kuwaiti coffee delivery app raises $10m in new funding

Kuwaiti coffee delivery app raises $10m in new funding
Updated 18 April 2021

Kuwaiti coffee delivery app raises $10m in new funding

Kuwaiti coffee delivery app raises $10m in new funding
  • The funding was provided by Kuwaiti listed investment house Al Imtiaz Investment Group
  • COFE was conceived in 2017 by Kuwait-based founder Ali Al-Ebrahim, developed in Silicon Valley and launched in 2018

DUBAI: Kuwaiti coffee delivery app COFE has raised $10 million in new funding, which it aims to use to scale up its operations in Kuwait, Saudi Arabia, the UAE and the UK and to expand into Egypt and Turkey.
The funding was provided by Kuwaiti listed investment house Al Imtiaz Investment Group. COFE was conceived in 2017 by Kuwait-based founder Ali Al-Ebrahim, developed in Silicon Valley and launched in 2018.
“From its early days, COFE has shown tremendous potential as a unique offering that caters to discerning coffee connoisseurs and their consumption habits, while helping to grow and transform revenue streams for vendors. Our partners have recognized this and are confident in our ability to serve existing customers and vendors, while expanding into new markets,” Al-Ebrahim said in a press statement.
Zev Siegl, a co-founder of international coffee chain Starbucks, is also an adviser to COFE. “I am happy to collaborate with the COFE App team and proud of the success and development they’ve achieved,” Siegl told the Mubasher website in April 2019. “During my stay in Kuwait, I visited more than 20 coffee shops and I was impressed by the high level of service, innovation and the high demand on coffee shops which ensure that the COFE app market will keep on growing and will reach the international market very soon.”


Israel and Greece sign record defense deal

Israel and Greece sign record defense deal
Updated 18 April 2021

Israel and Greece sign record defense deal

Israel and Greece sign record defense deal
  • The agreement includes a $1.65 billion contract for the establishment and operation of a training center for the Hellenic Air Force

JERUSALEM: Israel and Greece have signed their biggest ever defense procurement deal, which Israel said on Sunday would strengthen political and economic ties between the countries.
The agreement includes a $1.65 billion contract for the establishment and operation of a training center for the Hellenic Air Force by Israeli defense contractor Elbit Systems over a 22-year period, Israel’s defense ministry said.
The training center will be modeled on Israel’s own flight academy and will be equipped with 10 M-346 training aircraft produced by Italian company Leonardo, the ministry said.
Elbit will supply kits to upgrade and operate Greece’s T-6 aircraft and also provide training, simulators and logistical support.
“I am certain that (this program) will upgrade the capabilities and strengthen the economies of Israel and Greece and thus the partnership between our two countries will deepen on the defense, economic and political levels,” said Israeli defense minister Benny Gantz.
The announcement follows a meeting in Cyprus on Friday between the UAE, Greek, Cypriot and Israeli foreign ministers, who agreed to deepen cooperation between their countries.