Airlines Hit Fuel Surcharge Ceiling... Turning to Oil Price Hedging and Flight Optimization to Cope

As the prolonged Middle East war continues to drive up oil prices, international fuel surcharges for Korean airlines in May have soared to record highs. With the uncertainty of the war still lingering, industry observers warn that if high oil prices persist, airlines may face increasing burdens since there would be no room to raise fuel surcharges any further.

International fuel surcharges for international flights have soared to an all-time high, raising concerns in the travel industry about a potential decline in demand ahead of the summer vacation season. Photo by Yonhap News Agency

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According to the airline industry on April 17, major Korean airlines such as Korean Air and Asiana Airlines have set the international fuel surcharge for tickets issued in May at the highest level, Level 33. The fuel surcharge is an additional fee charged by airlines to offset losses from rising oil prices. It is determined monthly by each airline through internal adjustments, based on the Ministry of Land, Infrastructure and Transport's distance-based system.

For Korean Air, the fuel surcharge per one-way ticket will range from a minimum of 75,000 won to a maximum of 564,000 won. Last month, the surcharge ranged from 42,000 won to 303,000 won. For example, a round-trip ticket on the New York route in May would require an additional 1,128,000 won in fuel surcharges. Asiana Airlines will apply a fuel surcharge ranging from a minimum of 85,400 won to a maximum of 476,200 won per one-way ticket. This represents an increase of 41,500 won to 224,300 won compared to the previous month.

The average value of Singapore jet fuel (MOPS) applied to May’s fuel surcharges is 511.21 cents per gallon (214.71 dollars per barrel). Since Level 33, the highest level, applies when the price exceeds 470 cents per barrel, May’s surcharges fall under Level 33.

As the Middle East war drags on, fuel surcharges imposed on international flight tickets issued in May have soared to an all-time high. In response, domestic airlines plan to significantly increase the fuel surcharges added to tickets purchased next month. Yonhap News

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Industry insiders believe it will be difficult for Korean airlines to lower the June fuel surcharge immediately, as it will be based on the MOPS average from mid-April to mid-May. However, since the surcharge has already reached the highest Level 33, it cannot be increased any further, meaning airlines will have to absorb all additional cost burdens. An industry official stated, “Even if we wanted to charge more, there is no basis to raise the fuel surcharge, so we simply cannot.”

Airlines are expected to implement measures such as optimizing flight operations to reduce fuel consumption and engaging in oil price hedging to cope with high oil prices. An Asiana Airlines representative commented, “Since March 25, we have implemented emergency management measures to reduce operating costs and flexibly manage routes.” The company also stated, “We have signed oil price hedging contracts for 3.6 million barrels, which is about 30% of our expected fuel demand for this year, and we plan to respond to rising refueling costs at overseas airports by optimizing tankering by route.”

The government is also preparing measures to address the record-high fuel surcharges resulting from high oil prices. Kim Yoonduk, Minister of Land, Infrastructure and Transport, will hold a closed-door meeting on April 20 at Incheon Airport with the heads of 12 national airlines, including Korean Air and Asiana Airlines. The government plans to listen to the concerns of the airline industry, which is struggling due to high oil prices and a strong dollar.

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