Viva hit by jet fuel demand drop
Viva Energy predicts an 80-90 per cent slide in demand for jet fuel as the coronavirus pandemic forces airlines to cut capacity.
Viva Energy has joined Caltex in predicting an 80-90 per cent slide in demand for jet fuel as the coronavirus pandemic forces airlines to drastically cut capacity.
While the impact on its overall business remains uncertain, Viva followed its main rival, Caltex, in assuming a big hit to its aviation business given the virtual shutdown of the travel industry.
“We are currently experiencing significant volume reductions in aviation fuel demand following the restrictions on international air travel and reduction in flights,” Viva said on Tuesday, after Caltex had issued the same warning a day earlier.
Both Viva’s commercial and retail units performed well in the first two months of the year, with sales up 6.1 per cent in January to 59.4m litres a week from the period 12 months earlier. Volumes rose 5.8 per cent last month to 66.2m litres a week. Still, it sees a hit to performance “over time” given the spreading health crisis.
“With significant measures to curtail the spread of COVID-19 announced by the various state and federal governments, we expect to see some impacts to retail and commercial sales volumes over time, although this remains uncertain and will depend on the scope and duration of reduced economic and social activity,” Viva said.
A review of its operating costs and capital spending programs is also under way. The company has net debt of $137m and total debt facilities of $US700m ($1.179bn) available.
Viva’s assets include the Geelong refinery, one of only four in Australia, and a network of more than 20 fuel import terminals through which it supplies a quarter of the nation’s refined fuel needs. It supplies fuel to 50 airports around Australia and operates 1100 petrol stations throughout the country.
Its margin for processing crude into refined fuels at Geelong fell to $US2.40 a barrel last month from $US3.40 for January, reflecting higher oil premiums at the end of last year and lower regional refining margins due to softer global demand. Oil prices have plunged by more than half so far this year and a weaker Australian dollar would boost local refining margins, Viva said.
Swiss commodities giant Vitol bought the business for $2.9bn from oil giant Shell in 2014 and has pledged to remain a long-term owner in Viva and retain its current 45 per cent stake.
Viva rose 4.6 per cent to $1.255 on Tuesday while Caltex lifted 8 per cent to $20.51.