The Aviation Industry Can't Smile Amid High Oil Prices Despite Skyward Opportunities

Oil Prices Recently Surpass $100 Again
"Concerns Over Consumer Burden Due to Fuel Surcharges"

[Image source=Yonhap News]

[Asia Economy Reporter Hyunseok Yoo] The aviation industry is expanding international flights following the exemption of self-quarantine for overseas arrivals. However, high oil prices exceeding $100 per barrel are posing challenges.

According to the industry on the 22nd, the government decided from the previous day to exempt overseas arrivals who have completed vaccination from the current 7-day quarantine after entry.

With the self-quarantine exemption, airlines are expanding or resuming routes. The routes that are actively increasing first are Saipan and Guam. Air Seoul will launch a new Incheon-Saipan route twice a week starting from the 30th. Jeju Air will resume the Busan-Saipan route twice a week from the 30th. Additionally, Air Busan has been operating the Busan-Saipan route since the 16th and will operate the Busan-Guam route twice a week starting from the 30th. Jin Air also plans to operate the Busan-Guam route twice a week starting from the 16th of next month.

Along with this, routes to Japan are also expanding. Asiana Airlines will resume the Incheon-Nagoya route, which was suspended due to COVID-19, from the 1st of next month. This marks the first flight in 11 months since April 29 of last year. In addition, the frequency of major Japanese routes will increase. From the 27th, the Incheon-Narita route will operate daily instead of six times a week, the Incheon-Osaka route will increase from three to five times a week, and the Incheon-Fukuoka route will increase from once to twice a week.

However, high oil prices remain a concern. The ongoing high oil prices due to Russia's invasion of Ukraine are a burden not only for airlines but also for general consumers. On the 21st (local time), the April West Texas Intermediate (WTI) crude oil price on the New York Mercantile Exchange (NYMEX) closed at $112.12 per barrel, up $7.42 (7.1%) from the previous trading day, showing a recent upward trend again.

The burden of fuel costs can also reduce passenger demand. As fuel prices rise, fuel surcharges are applied, which increases the price of airline tickets purchased by consumers. Next month’s international fuel surcharge is expected to rise by four levels to level 14 compared to this month. This is the highest level since the distance-based fuel surcharge system was applied. As a result, a surcharge ranging from 28,600 to 211,900 KRW will be imposed based on one-way distance. Compared to this month’s fuel surcharge, the maximum surcharge amount has increased by 53.3%. Domestic fuel surcharges will also increase from 8,800 KRW to 9,900 KRW next month.

The same applies to airlines. Fuel costs account for 20-30% of the cost of sales, making it a significant fixed cost. For airlines preparing to resume international flights, operating aircraft without passenger demand could lead to losses. An industry official said, "While the self-quarantine exemption is sending hopeful signals to the aviation industry, the rise in fuel costs is an obstacle," adding, "It increases the burden on both airlines’ costs and consumers."

This content was produced with the assistance of AI translation services.