Japan Airlines to boost Aug jet fuel loadings 37% on month on demand rebound

Tokyo — Japan Airlines plans to boost its August jet fuel loading volumes by 37% from July due to expectations of a further recovery in demand, a company official told S&P Global Platts July 17.

JAL's planned hike in its jet fuel loadings in August is up from a 30% month-on-month jump seen in July, the official said. However, the month-on-month increase in its July jet fuel loading volumes is less than the 40% surge it had expected earlier due to the base effect. The month-on-month rise in its June loadings was 13%, more than double the 6% it expected, the official said.

JAL's latest jet fuel outlook comes as it sees its domestic flight demand

recovering to about a year-on-year fall of 30% in mid-August during the country's peak summer holiday season compared with a drop of about 65% currently, following the lifting of cross-prefectural transport restrictions on June 19.

JAL said on July 9 that it expected the cancellation rate of its domestic flights to fall to just 9% in August as it sees its domestic demand rising to about 60% lower than a year earlier, following the lifting of Japan's state of emergency to curb the spread of the coronavirus on May 25.

The company also sees its cancellation rate for international flights at 90% in August, down from 92% in July.

For September, JAL expects its jet fuel loading volumes to drop 12% from August because it does not have some of its special flights during the peak holiday season in the next month, the official said.

The company also sees about a 50% year-on-year drop in domestic flight demand in September, and demand for its international flights about 80% lower than what it was a year earlier.

Supported jet prices

Reflecting the rising demand in the physical market, the FOB Singapore jet fuel/kerosene cash differential was assessed at a discount of 14 cents/b to the Mean of Platts Singapore jet fuel/kerosene assessment at the 0830 GMT July 17. This marked a 57% jump since the July 1 when it was assessed at MOPS minus 71 cents/b, S&P Global Platts data showed.

The cash differential had previously widened to a record discount of $4.67/b on May 4, 2020.

"The jet yield is improving, it means demand is picking up," a Singapore-based refining source said.

Supporting this, the FOB Singapore jet fuel against front month cash Dubai flipped into positive territory and was assessed at plus $1.35/b July 17, up $1.42 since July 1.

July demand

July's 60%-70% year-on-year drop in Japanese jet fuel demand was less sharp than June's 70%-80% as airlines resumed both domestic and international flights, Petroleum Association of Japan President Tsutomu Sugimori said July 17.

"Demand [for jet fuel] is gradually recovering, mainly for domestic flights," Sugimori told a press conference. "The resumption of international flights remains quite slow."

Sugimori's comments came as Japanese airlines increasingly resumed domestic flights following the lifting of cross-prefectural transport restrictions June 19, after the government lifted the state of emergency to curb the spread of the coronavirus May 25.

Japanese refiners, however, are still minimizing their jet fuel output as the recovery in aviation fuel demand remains slower than other key refined products, Sugimori said.

"The production yield of jet fuel and kerosene distillates is usually around 20% [of total production]," Sugimori said, who is also chairman of ENEOS Holdings, the parent of the largest Japanese refiner ENEOS.

"Speaking of ENEOS, we have squeezed it by half. Other [Japanese] refiners should be carrying out such operations to minimize kerosene distillates amid lackluster jet fuel demand."

While minimizing their jet fuel/kerosene output, some Japanese refiners were importing some refined products to make up the shortfall caused, he added.