Will Summer Vacation Fuel Surcharges Increase Due to Soaring International Oil Prices?

International Oil Price Rise Reflected with Time Lag
Fuel Surcharge May Increase Starting This Summer

As international oil prices continue to soar, airline fuel surcharges are also expected to rise. Due to the time lag in reflecting the increase in oil prices, it is anticipated that the burden of airfares will increase during the summer peak season.

According to the industry on the 5th, Asiana Airlines has already raised international fuel surcharges by 400 to 2,400 KRW depending on the route from January to April this year. During the same period, Korean Air kept international fuel surcharges frozen but raised domestic surcharges by 1,100 KRW. Jeju Air, the leading low-cost carrier (LCC), mostly froze or lowered international surcharges but increased domestic fuel surcharges by 1,100 KRW.

With the Middle East situation causing a sharp rise in international oil prices, airline fuel surcharges, which are set based on oil prices, are also expected to increase. Since fuel costs account for about 30% of aircraft operating expenses, airlines have no choice but to raise fuel surcharges when oil prices rise due to the burden of fixed costs.

Fuel surcharges are fees separately charged on fares to compensate for losses airlines incur when international oil prices rise. For international flights, according to the Ministry of Land, Infrastructure and Transport’s distance-based system, surcharges are applied in 33 steps when the average price of Singapore jet fuel (MOPS) exceeds 150 cents per gallon. For domestic flights, surcharges are applied when the MOPS average price exceeds 120 cents per gallon.

Because fuel surcharges reflect oil prices with a time lag, it is expected that fuel surcharges will rise significantly during the summer vacation season. Typically, fuel surcharges are announced for one month based on the average international oil price of the previous two months and then applied for the following two months. For example, fuel surcharges applied in June and July are announced in May based on the average international oil price in March and April.

An airline official explained, "Since fuel surcharges are set according to the ticketing date rather than the boarding date, it may be better to purchase airline tickets in advance to prepare for the summer vacation season."