Analysis: Global jet fuel demand likely to slip 1.3% on Boeing 737 Max groundings

Last week’s grounding of the bulk of Boeing’s 737 Max 8 fleet could cause global jet fuel demand to fall by as much as 85,000 b/d, an analysis by S&P Global Platts Analytics showed.

While that loss reflects just 1.3% of global demand, and will unlikely have an impact on jet fuel spot prices, the impact could grow depending on how long the planes are grounded.

Following a March 10 crash of an Ethiopian Airlines 737 Max 8 after takeoff from Addis Ababa, and a crash in October of a Lion Air 737 Max 8 after takeoff from Jakarta, Indonesia, many countries around the world decided to temporarily ground Boeing’s latest addition to its 737 fleet.

Initially, 737 Max 8 operators in China, Indonesia, Ethiopia, Morocco, Mexico, Argentina and several other countries grounded a total of 135 planes out of a worldwide fleet of roughly 350 planes.

Since that time, several European countries, New Zealand, Lebanon, Egypt, Hong Kong and several other smaller countries have done the same.

Even the US and Canada, which had been resisting this general move to ground the 737 Max 8, have capitulated and have grounded their 737 Max 8 and Max 9s.

Platts Analytics estimates that out of a global fleet of 350 Max 8s, just over 319, or 90%, of them have been grounded.

Grounded	Total		Jet fuel	Lost jet fuel
	Max 8	Fleet	% Ground	Demand (1,000 b/d)	Demand (1,000 b/d)
North America	138	7,210	1.9%	1,824	35
Europe	42	6,080	0.7%	1,597	11
Asia Pacific	105	7,360	1.4%	2,048	29
Mid East	14	1,500	0.9%	414	4
Latin America	13	1,560	0.8%	380	3
Africa	7	690	1.0%	209	2
Global	319	24,400	1.3%	6,472	85
Source: S&P Global Platts Analytics

Because these grounded planes represent only 1.3% of the large narrow body planes throughout the world, the general consensus has been that the impact on jet fuel demand will be minimal.

As a result, traders have so far shrugged off the groundings, and jet fuel prices have been little changed.

Boeing describes its Max 8 as a large body single aisle jet with 210 seats, and the Max 9 with a maximum of 220 seats. In the US, for which the most granular data is available, the Max 8 accounts for only 2.2% of that country’s large narrow-body fleet.

Assuming that the grounding affects jet fuel demand, which was 1.7 million b/d as of last year, to a similar degree, US demand loss would likely amount to no more than 30,000 b/d.

Looking at separate US and international data suggests that the Max 8 can be compared with other large narrow body planes throughout the world. The only international data sets available are for large narrow-body jets, which represent 70% of the worldwide passenger fleet. The Max 8 fleet exhibits similar characteristics to large narrow-body planes worldwide. It seats 215 passengers, compared to the Platts Analytics estimate of 254 passengers globally. The Max 8 flight length, which measures the average distance traveled, is 1,171 miles in the US and 1,175 miles globally.

As shown in the table below, the grounded Max 8’s regional share of the total large narrow-body fleet varies, with the largest relative presence being 1.9% in North America, and the lowest at 0.7% in Europe.

With global jet fuel demand totaling roughly 6.5 million b/d, as of 2017, a grounding of the Max 8 fleet would lower fuel demand by 85,000 b/d.

This, of course, is the maximum loss, as other narrow body planes could be put into service to substitute for the grounded Max 8s. Load factors averaged 81% in 2017, suggesting that some spare capacity exists.

Although the demand loss is not great in percentage terms, the impact could grow depending on how long the planes are grounded. Based on a sample set of the number of days from when an airplane accident of whatever sort is first reported until the first Federal Aviation Administration report is issued can take up to 680 days, or almost 1.9 years.
Source: Platts