Fuel Surcharges Remain High, Why?

Despite International Oil Prices Recovering to Early Year Levels,
Jet Fuel Prices Remain Unchanged,
Airfare Price Burden Expected to Persist

[Asia Economy Reporter Yoo Hyun-seok] Although the sharply rising international oil prices have returned to early this year's levels and fuel surcharges have somewhat decreased, they still remain higher than in previous years. As COVID-19 restrictions have eased, the surge in air travel demand has kept jet fuel prices from falling easily, resulting in fuel surcharges not dropping either. Accordingly, the burden of airfare prices on travelers is expected to continue for the time being.

On the 28th, the February contract for West Texas Intermediate (WTI) crude oil on the New York Mercantile Exchange (NYMEX) was recorded at $79.53 per barrel. This is a drop of more than $40 compared to the peak of $123.70 per barrel on March 8.

As a result, fuel surcharges are also trending downward. Fuel surcharges are fees added by airlines to fares to compensate for losses caused by rising oil prices. They were introduced in July 2016 and range from level 1 to level 33. For international flights, level 22 was applied in July and August. Then, level 16 was applied in September, and level 17 in October. This month, level 15 is applied, and level 12 is expected in January next year.

However, these levels are still high compared to the past. From November 16 to December 15 last year, WTI ranged from a high of $80 to a low of $65, and a level 6 fuel surcharge was applied in January this year. In contrast, during the same period last year, WTI prices ranged from a high of $85 to a low of $71. Although this year’s prices are somewhat higher, the surcharge levels have nearly doubled.

The reason the decline in fuel surcharges does not keep pace with the drop in international oil prices lies in the jet fuel prices, which are not falling easily. International flight fuel surcharges are calculated based on the average price of Singapore jet fuel from the 16th of the previous month to the 15th of the current month. In other words, they are determined by jet fuel prices. Jet fuel prices, which were $100.83 per barrel in January this year, peaked at $166.37 in June, then showed a downward trend through the third quarter but have stalled again in the fourth quarter. As of the 23rd of this month, jet fuel was priced at $112.23 per barrel, which is 32% more expensive than a year ago ($84.71 per barrel).

The reason jet fuel prices are not falling easily is due to increased international flight demand following the easing of the COVID-19 situation. Last month, international passengers numbered 3,081,331, a surge of 734% compared to the same period last year. With high air travel demand, jet fuel prices have maintained a high level. Industry insiders expect jet fuel prices to remain high going forward. An industry official said, "The amount of jet fuel that can be produced from crude oil is limited," adding, "Jet fuel prices appear to be maintaining a high level due to the recovery in travel demand."

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