FACTBOX: North Asian jet fuel market takes off as flights resume - S&P Global

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Highlights

April particularly bearish as airlines curtailed flights

Global jet fuel demand to drop 24.7% on year in 2020: Platts Analytics

Resumption of flights aids recovery of jet fuel prices

Singapore — Major airlines in North Asia have eased flight restrictions as countries endeavor to revive sagging demand in their coronavirus-stricken economies, lending some support to jet fuel refining margins and price differentials, as well as offering a glimmer of hope to the aviation sector, ravaged by swathes of layoffs as planes remain grounded.

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Globally, the number of confirmed cases stood at 7,086,008 at 0144GMT on June 8, according to Worldometer.info, which collects statistics and data from the World Health Organization and other agencies.

April was a particularly bearish month for the Asian aviation sector as many airlines slashed operations to offset the plunge in passenger numbers.

Asia-Pacific airlines' international passenger numbers plummeted 98.8% year on year to 368,000 international passengers in April, from 31.87 million passengers a year ago, according to a report on May 27 from the Association of Asia Pacific Airlines.

The following are some key facts about the jet fuel market as flights resume.

Infrastructure

South Korea

• Korean Air, South Korea's biggest airline, in May, announced plans to raise its international capacity to 19 routes in June, increasing its operations to 146 flights a week on 32 international routes. In May, it offered 55 flights a week on 13 international routes compared with 900 flights on 110 international routes before the COVID-19 outbreak.
• According to its update on June 5, the airline will operate flights from Incheon to Los Angeles, New York, Bangkok, Manila and Japan's Narita Airport on a daily basis. In July, more daily flights are scheduled to fly to various cities such as Atlanta, Hanoi, Ho Chi Minh City, Ulaanbaatar, Haneda, Osaka, and some cities in China.
• Asiana Airlines, South Korea's second largest carrier, has daily flights operating from Incheon to Japan's Narita airport, Los Angeles and New York, according to its website on June 8. All other international destinations are either suspended, or flying at reduced capacity.

China

• Cirium data showed that the average number of domestic flights in China totaled 7,734 per day in May, accounting for about 78% of the pre-COVID-19 level. According to Cirium, China's international flights averaged 106 per day in May, 96.4% lower than the level recorded prior to COVID-19.
• An uptick is expected in coming weeks as China Eastern Airlines, China's second-largest domestic carrier, plans to resume 70%-80% of local flights by end-June.
• Cathay Pacific, Hong Kong's flag carrier, intends to operate additional passenger flights from June 21-30, which will likely increase the operating capacity in June to around 5% from an estimated 3% in May.

Japan

• Top Japanese airline All Nippon Airways, or ANA will resume 23 domestic routes in June in local areas. ANA sees its international flight cancellation rate at 91% of its annual plan in June, compared with 93% in May. It has scheduled a cargo flight between Narita and Frankfurt, Germany from June 10, its first extraordinary cargo flight to Europe since the pandemic.
• Japan Airlines expects its international flight cancellation rate at 96%, including a 100% flight cancellation rate to Oceania in June, flat from May. JAL's domestic flight cancellation rate stood at 72% over June 1-14, unchanged from May 23-31.
• Japan's Minister of Foreign Affairs Toshimitsu Motegi recently agreed with Vietnamese, New Zealander and Australian counterparts to resume mutual visits by necessary personnel, while taking apt infection control measures.
• Japan is also poised to let business travelers with proof of a negative virus test result bypass a two-week coronavirus quarantine requirement from some countries, according to the Nikkei on June 5.

Prices

• The outright FOB Singapore jet fuel/kerosene price plummeted by almost 84% since the start of 2020 to a record low of $13.06/b on April 22, but has rebounded since then, gradually climbing to $39.55/b at the 0830 GMT Asian close June 5, marking a 202.8% spike from the trough, S&P Global Platts data showed.
• The strength was also reflected in the derivatives market, where the front month June/July Singapore jet fuel/kerosene swap spread rose from a record low of minus $3.90/b on April 30 to minus $1/b at the Asian close on June 5.
• Similar strength was reflected ahead as well, for the Singapore jet fuel Q3/Q4 spread, which rebounded from an all-time low of minus $6.33/b on March 31 to minus $2.82/b at the Asian close on June 5.

Trade-flows

• According to S&P Global Platts Analytics, jet fuel demand is forecast to recover in second-half of 2020, but this will lag the recovery for other products. The outlook for jet fuel resembles an "L-shape" so far due to ongoing restitutions on international travel, Platts Analytics said on June 4.
• Platts Analytics forecasts a 24.7% year on year decline in global jet fuel demand in 2020 to 5.43 million b/d. It forecasts a 20.7% year on year decline in Asian jet fuel demand in 2020 to 1.98 million b/d.
• "Led by China, Asia Pacific demand will see a slightly gentler decline in 2020, but 2021 demand will remain below 2019 levels," it said.

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