Asia jet fuel outlook brightens as more regional airlines join the fray in COVID-19 recovery

Singapore — The Asian jet fuel/kerosene market is on the road to recovery from its recent downswing brought on by the COVID-19 pandemic as demand for aviation fuel gradually returns, with more regional carriers set to resume operations.

Singapore's flagship carrier Singapore Airlines - among the largest in Asia - and its regional wing, SilkAir became the latest to join other airlines in the region in restoring international flights from June amid easing travel restrictions, helping to navigate prices out of slump.

This recovery was seen in the FOB Singapore jet fuel cash differential which has soared almost 97% from the record low of minus $4.67/b to Mean of Platts Singapore jet fuel/kerosene assessment on May 4, 2020, to a discount of 16 cents/b at the 0830 GMT Asian close on June 3.

"Jet fuel demand is improving step by step ... demand should recover [soon]," an industry source said.

In the derivatives market, the contango in the front-month July/August timespread also narrowed significantly from its trough of minus $3.90/b on April 30, 2020, to minus 96 cents/b at the 0830 Asian close on June 3.

At 0300 GMT June 4, brokers pegged the same spread at minus $1.00/b.

The FOB Singapore jet fuel outright price registered a 35.89% month on month jump, rising $7.63/b from April's average of $21.26/b to an average of $28.89/b in May, S&P Global Platts data showed.

At the 0830 GMT Asian close on June 3, the outright price was assessed even higher, at $39.58/b.

Hinting at the worst being over, the International Air Transport Association said on June 3 that international air traffic hit "unprecedented lows" in April this year, but on a more positive note, April might have been the lowest point of the crisis for air passenger volumes.

ASIA EN ROUTE TO RECOVERY

SIA plans to increase the number of destinations as well as ramp up frequencies on flights to its existing network over the next two months, in a partial reinstatement of its scheduled flights in June and July that will add 500 new flights to 11 additional cities, revising the airline's capacity cuts to 94%, down from 96% in March.

The carrier announced June 1 that it is planning to increase the number of destinations as well as ramp up frequencies on flights to its existing network over the next two months including services to Adelaide, Amsterdam, Auckland, Barcelona, Brisbane, Cebu, Christchurch, Copenhagen, Hong Kong, Medan, Melbourne, and Osaka

Other than Singapore Airlines, South Korean carriers in late-May restored international flight operations from June 1 as the COVID-19 pandemic appears to have abated. National carrier Korean Air, the country's biggest airline, restarted its international flight routes, albeit at a limited capacity, the airline reported on its website on June 3.

According to its latest updated flight schedule, the airline will operate flights from Incheon to Los Angeles, New York, Bangkok, Manila and Japan's Narita Airport on a daily basis. Other flight destinations are either suspended or operating at a reduced capacity.

In Hong Kong, although the ban on all visitors remains in place, the airport has lifted its ban on transit passengers with effect from June 1. The state carrier Cathay Pacific and its regional wing Cathay Dragon are eyeing to increase its flight capacity and will operate five weekly flights to airports in London, Los Angeles, Vancouver and Sydney over June 21-30.

In addition, three weekly flights will be scheduled to cities like Amsterdam, Frankfurt, San Francisco, Melbourne, Mumbai, and Delhi, in addition to reinstating daily flights to Singapore, South Korea, and Japan.

Apart from passenger flights, air cargo activity has also gained ground.

Japan's All Nippon Airways said on June 1 it has decided to operate a cargo flight between Narita and Frankfurt in Germany from June 10 as a means to maximize fleet utilization rates.

From June 10, ANA will start a weekly round-trip cargo flight to Frankfurt from Narita, near Tokyo. This comes at a time when ANA sees its international flight cancellation rate at 91% of its annual plan in both the first half and second half of June, compared with 93% in May.

"I think the jet fuel market is pretty supported now, with airline demand slowly coming back, but this does not mean that the aviation sector is out of the woods yet," a Singapore-based refining source said. "There is still a fear of flying and contracting the virus....We will have to wait and see what happens."