(Bloomberg) -- A jet fuel shortage in Japan is hampering foreign airlines and threatening to curtail a tourism boom just as travelers are flocking to the country seeking to take advantage of a historically cheap yen. The scarcity of fuel has spurred the government into action, forming a task force across different ministries and the private sector.
1. So what’s happening?
Asian airlines including Korean Air Lines Co. and low-cost carrier T’way Air Co. were forced to reconsider plans to increase flights to Hokkaido due to stricter overtime work regulations, which had led to a shortage of seafarers delivering jet fuel, local broadcaster NHK first reported back in June. The problem has since expanded to major hubs such as Narita Airport, prompting the government to set up a task force last month to tackle the issue.
2. How did this shortage come about?
Japan is seeing a strong post-pandemic influx of foreign travelers, strengthened by a weak yen that is trading at more than 30-year lows against the US dollar. Government officials say the supply issue has been caused by especially strong demand from charter flights to regional airports in addition to requests from foreign airlines to provide fuel at a short notice. Exacerbating the pressure is a lack of qualified workers to deliver the fuel due to stricter overtime regulations that came into effect earlier this year.
“So far we have been able to manage the overall volume by balancing imports and exports, but there was a lack of logistics to bring the (fuel) cargo to the airports, so it was difficult to cope with the sudden increase in the number of travelers,” says Takehiko Nagai, a director at the Agency for Natural Resources and Energy.
3. Are these shortages happening anywhere else?
Japan’s jet fuel shortage is a problem of its own making.
The country’s refiners have been consolidating their production for a number of years, as an aging population and falling consumption of oil products led to a diminishing need for domestic crude processing. Idemitsu Kosan Co. shut its half-century old refinery in March, while Eneos Holdings Inc. ended operations at its Wakayama refinery last year.
Demand for jet fuel, however, has been especially strong as international travel returned after Covid 19. Global jet fuel demand has now exceeded its pre-pandemic levels, according to the world’s largest independent oil trader, Vitol Group, with a record number of flights expected this quarter. That’s creating lopsided demand for aircraft fuel over other refined products, requiring increased imports to meet airlines’ needs.
As well as refining capacity, logistical bottlenecks and a lack of manpower have also been cited as key factors. “There’s a shortage of people who can handle and transport these fuels,” said Yutaka Miki, a principal consultant at the Japan Research Institute. “It won’t be easy to just simply add more manpower — people need special licenses to handle these potentially dangerous fuels,” he added.
4. Will my Japan travel plans be disrupted?
There appears to be little disruption so far with seat capacity continuing to rise as air travel to and from Japan hits its peak summer season. “The impact will be limited, if any, particularly with the move to import jet fuel now,” said Bloomberg Intelligence aviation analyst Eric Zhu. “We are seeing a 6% sequential increase in third-quarter scheduled international Japan seats compared to the previous quarter, which is on par with the pre-pandemic seasonal bumps.”
Airlines would ideally want to schedule more flights to meet the high demand but the fact they have been able to maintain their previously planned schedules without cutting back on flights indicates the impact has been subdued, Zhu added.
Production of jet fuel appears to be keeping pace with 2023 levels, not ideal when aircraft capacity has grown. Data from Cirium indicates available seat miles, which indicates the size of planes and distance of travel, are up 25% year on year.
5. What are the government and companies doing about it?
The government plans to increase fuel production and imports to meet the demand. The Ministry of Economy, Trade and Industry says it will increase fuel supply using larger vessels and hire more refueling staff to solve logistics issues. It also plans to help train the expanded workforce.
Companies have started implementing some measures. Narita International Airport Corp. decided to accept imported jet fuel and it will be the the first time for the major airport to use its own fueling and transport facilities to accept imported fuel.
At the peak of the shortage, the jet-fuel issue affected 140 flights per week, the transport ministry said Friday. Since then, authorities have managed to temporarily increase the jet-fuel supply for Narita-bound flights as well as boost delivery capacity to be able to handle an additional 150 flights per week, the ministry said.
6. So how long until things go back to normal?
The government has not given a timeline for solving the issue but says it is making efforts to avoid any impact on airlines’ winter schedules.
The nation’s main airports, like Narita and Haneda, may see the issue resolved relatively quickly, because they have more manpower and serve a larger amount of travelers, said the Japan Research Institute’s Miki. The problems may persist for longer in smaller regional airports due to a lack of key staff and the difficulties of delivering fuel to more remote locations, he said.
But concerns remain ahead of the winter tourist season. The northernmost prefecture of Hokkaido, which has only one refinery, is more vulnerable to jet-fuel shortages given its distance from the rest of Japan’s refineries and the shortage of transportation manpower. The island’s Sapporo and Obihiro airports are considered the most likely to be affected.
--With assistance from Danny Lee and Yongchang Chin.
©2024 Bloomberg L.P.
