Domestic Fuel Surcharges for July Flights Decrease... Expectations Rise for International Surcharge Reductions

Domestic Fuel Surcharge Down by 11,000 Won

Slowing International Oil Price Increases

International Surcharges Also Expected to Return to Early-War Levels

As the increase in international oil prices has slowed, domestic fuel surcharges for tickets issued in July have declined. With international fuel surcharges—which had been discouraging travelers—also expected to fall for a second consecutive month, there are forecasts that this could provide some relief to the airline industry, which has been suffering from high exchange rates.

Korean Air passenger plane taking off from Incheon Airport. Photo by Yonhap News

According to the airline industry on June 11, Korean Air and Asiana Airlines have reduced the domestic fuel surcharge for tickets issued next month from 35,200 won to 24,200 won per one-way ticket, a decrease of 11,000 won. Low-cost carriers (LCCs) are also expected to lower their fuel surcharges to similar levels.

The domestic fuel surcharge is determined based on the average value of Singapore jet fuel (MOPS) from the first to the last day of the month before last. In May, the average Singapore jet fuel (MOPS) price was 361.27 cents per gallon (151.73 dollars per barrel), which was lower than in April (477.20 cents per gallon or 200.42 dollars per barrel), and this was reflected in the surcharge.

Industry analysts predict that the international fuel surcharge, which reached its highest level at 33 steps in May, could drop to as low as 18 steps. The international fuel surcharge, which was at 18 steps in April, rose to 33 steps in May and then fell slightly to 27 steps last month.

Korean Air lowered its international ticket prices from 75,000–564,000 won to 61,500–451,500 won per one-way ticket as the fuel surcharge dropped from 33 steps to 27 steps. For long-haul round-trip routes, such as to New York in the United States, the fuel surcharge alone can amount to 903,000 won. The international fuel surcharge for tickets issued in July is expected to be announced around June 16.

The reduction in fuel surcharges is welcome news for airlines facing the dual challenges of high exchange rates and high oil prices, both of which are suppressing travel demand. Since the first quarter, airlines have implemented emergency management measures, unpaid leave, and route reductions to cut costs. LCCs have been trying to sustain demand by adopting aggressive promotional policies.

In particular, airlines are especially hard hit by the current high exchange rate situation because most of their operating expenses—including lease fees and fuel costs—must be paid in U.S. dollars, making exchange rate losses inevitable. In the case of Korean Air, every 10 won increase in the won-dollar exchange rate results in a 55 billion won change in foreign currency valuation gains and losses, and approximately 16 billion won increase in cash outflow.

Despite the recent rise in fuel surcharges, the fact that international passenger numbers have remained robust is a positive sign.

Jeong Yeonseung, a researcher at NH Investment & Securities, said, "In May, the number of international passengers at airports nationwide increased by 8.2% compared to a year ago. If fuel surcharges fall further, this could trigger a surge in latent domestic travel demand, and performance improvements are expected from the fourth quarter of this year through the first quarter of next year due to strong demand."

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