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Friday, December 2, 2022
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South Korea’s Airlines Set To Charge Passengers More For Fuel

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Rising jet fuel prices are again seeing South Korea’s airlines increase their fuel surcharges in March. Fuel surcharges on domestic routes will increase from 5,500 won (US$4.60) to 8,800 won ($7.36), while surcharges on international flights will depend on the length of the route. International fuel surcharges will start at 18,000 won ($15.06) and go up to 138,200 won ($115.60) for longer flights, according to simpleflying.com

After axing fuel surcharges in 2020, South Korea’s airlines reintroduced them last April. However, jet fuel prices have increased since then. In turn, fuel surcharges have also steadily trended upwards. For every US$1.00 increase in the oil price, flag carrier Korean Air racks up a further $30 million in fuel expenses. The price of jet fuel is closely tied to the oil price and normally accounts for between 20% – 30% of Korean Air’s annual operating costs. The cost of fuel for South Korea’s airlines depends on the jet fuel prices traded on the Singaporean market.

The fuel surcharges are like an insurance policy in case jet fuel prices don’t dip soon (and many analysts don’t think prices will drop this year). At some point, Asiana, Korean Air, and South Korea’s other airlines will need to buy more fuel. The extra revenue collected from these surcharges helps offset the added expense of doing so if purchased when prices are high.

However, what is saving airlines some money is the reduced amount of flying they are doing compared to pre-pandemic levels. Reduced flying means less fuel used which means less money spent on fuel. It’s a silver lining in the broader COVID-19 airline catastrophe.

Singapore jet fuel broke through the $100 per barrel level in mid-January, the first time in seven years that happened. Skip forward one month, and the jet fuel price is now trading slightly above $110.

Korean Air international passengers flying to Shenyang and Fukuoka will pay the smallest fuel surcharges while passengers heading to New York, Dallas, Boston, Chicago, Atlanta, Washington, Toronto will pay the top surcharge. Sitting in the second most expensive band are flights to London, Los Angeles, Vancouver, San Francisco, Sydney, Seattle, Amsterdam, Auckland, Paris, and Frankfurt.

Asiana’s international destinations with the smallest fuel surcharges are Dalian, Miyazaki, Yanji, Yancheng, Yantai, Weihai, Changchun, Qingdao, and Fukuoka. At the other end of the scale, the airline saves its biggest surcharges for flights to New York, London, Rome, Los Angeles, San Francisco, Sydney, Seattle, Paris, Frankfurt, Venice, and Barcelona.

If Singapore’s jet fuel prices break the $1.50 per gallon mark in a month, South Korea’s airlines can start charging fuel surcharges. They revisit the surcharge level every month while the price is above $1.50 and adjust the levy accordingly.

Airlines generally buy their fuel in advance using a process known as hedging. They buy when they think the spot price is low and organize delivery when they think the spot price will be high. So South Korean airline passengers buying a ticket today to fly in March will pay the increased surcharge but will likely be flying on planes using fuel purchased at lower prices. That’s not exclusive to South Korea. Nearly all airlines practice fuel hedging.

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