Japan Airlines H2 June domestic cancellations seen falling; a boost to jet fuel demand

Tokyo — The ailing jet fuel market is expected to get a boost after Japan Airlines said it expects the cancellation rate of its domestic flights to fall to 54% in the second half of June, from 72% in H1 June, in anticipation of a rise in demand following the recent lifting of Japan's state of emergency measures.

JAL's latest outlook comes as it sees its domestic flight demand sliding 80% year on year in June, compared with the 90% plunge in May, a company official said on June 11, adding that its flight bookings in July is to further improve with the drop expected at 70%.

While JAL has not released its domestic flight cancellation rate for July, it sees its cancellation rate for international flights at 93% next month, down from a 96% cancellation rate in June, due to an expected hike in demand by Japanese returnees from North America and Europe, the official said.

Currently, JAL expects its international flight operating rate for North America to improve to 15% in July from 3% in June, compared with 21% in July and 6% in June for Europe, the official said.

On June 9, Japan's top airline All Nippon Airways said it will resume a round-trip passenger flight from Haneda in Tokyo to Bangkok in Thailand and increase flights to Jakarta in Indonesia in July.

ANA sees its international flight cancellation rate in July at 90% of its fiscal 2020-2021 (April-March ) plans, compared with 91% in June and 93% in May. It also sees its domestic flight cancellation rate for June at 69% of its fiscal 2020-2021 plan, compared with 86% in May, as it expects some recovery in flight bookings.

Supporting demand

A source with a Japanese refiner said on June 11 that domestic jet fuel demand will rise as people activate movement following the lifting of the state of emergency measures on May 25, but the company does not foresee any immediate need for jet fuel imports.

"There is also a supply shortage now, due to run cuts and refinery turnarounds in the region. Refiners are still minimizing jet fuel production," the Singapore-based trader said.

Japan's crude throughput rose 5.3% week on week to 1.92 million b/d over May 31-June 6, with its refinery utilization rates having also increased from 51.8% in the prior week to 54.5% of overall capacity, the Petroleum Association of Japan said on June 10.

The May 31-June 6 crude throughput marked the first week-on-week increase in seven weeks since Japan's crude processing volume last increased in the week of April 12-18.

Several Japanese refineries are also slated to restart in the coming weeks from scheduled and unscheduled shutdowns.

The aviation sector was injected with optimism on news that regional flights were taking to the skies. As a result, the FOB Singapore jet fuel/kerosene value trended higher and was assessed at $41.66/b at the 0830 Asian close on June 11, up 18 cents/b day on day, S&P Global Platts data showed.

This marked a 218.99% recovery since the jet fuel benchmark fell to a 21-year low of $13.06/b on April 22 as airlines grounded flights on cost-cutting measures to combat dwindling passenger rates.

In the derivatives market, the front month July/August timespread has also recouped 81.79% since falling to a historical low of minus $3.90/b on April 30, to be assessed at minus 71 cents/b at the Asian close on June 11, Platts data showed.