Impact of China's Travel Rebound on Jet Fuel Prices
The resurgence of leisure and business travel in China following the easing of Covid-19 restrictions is expected to boost aviation demand and potentially lead to a surge in jet fuel consumption. However, this comes with a drawback as tight supplies and unplanned refinery outages have caused a decline in aviation fuel availability. As a result, jet fuel prices have risen by approximately 30% this month, potentially impacting airlines' profitability and resulting in higher fares for travelers. The global oil market has also experienced a price increase due to OPEC+ output curbs and higher refinery run rates. China's uneven recovery has been a point of concern, but encouraging data on flight bookings indicate a positive trend in domestic and international travel. However, a full recovery for Chinese international tourism is expected to take time due to factors such as high costs, a weakening yuan, a sluggish economy, and difficulties in obtaining travel documents. As demand for jet fuel accelerates in China and globally, fuel supplies remain stretched, making markets more vulnerable to price shocks. Refinery maintenance work in North America and Europe in the coming months could further reduce fuel supplies, potentially leading to peak jet fuel prices in September. This may prompt airlines to pass on costs to customers through fuel surcharges, potentially affecting travel demand, particularly in Asia.
How China's Travel Rebound and Rising Jet Fuel Prices Could Impact New Businesses
The revival of travel in China, post-Covid-19 restrictions, is likely to stimulate aviation demand, leading to a potential increase in jet fuel consumption. However, this surge comes with a caveat.
Jet Fuel Availability and Prices
Tight supplies and unexpected refinery outages have led to a decrease in aviation fuel availability. Consequently, jet fuel prices have soared by roughly 30% this month. This could negatively impact airlines' profitability and lead to increased fares for travelers. The global oil market has also seen a price hike due to OPEC+ output restrictions and increased refinery run rates.
China's Uneven Recovery
Despite concerns over China's uneven recovery, flight booking data indicates a positive trend in both domestic and international travel. However, a complete recovery of Chinese international tourism is expected to be slow due to high costs, a weakening yuan, a sluggish economy, and difficulties in obtaining travel documents.
Future Implications
As jet fuel demand rises in China and globally, fuel supplies remain constrained, leaving markets more susceptible to price shocks. Upcoming refinery maintenance work in North America and Europe could further deplete fuel supplies, potentially leading to peak jet fuel prices in September. This could force airlines to pass on costs to customers through fuel surcharges, which may affect travel demand, especially in Asia. For new businesses in the travel and tourism sector, these dynamics could present both challenges and opportunities.
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