Airline fuel surcharges are expected to rise sharply in April as international oil prices surge amid signs of a prolonged U.S.-Israel-Iran conflict. Industry observers warn that international flight tickets issued next month could cost more than 100,000 won ($75) higher than this month for the same routes.
According to major foreign news outlets and aviation industry sources on March 16, domestic airlines are set to announce April fuel surcharges that will be significantly higher than current levels.
The surge in Middle East oil prices is expected to push the average Singapore jet fuel price (MOPS) for the February 16-March 15 period—the benchmark for next month's surcharges—to at least 300 cents per gallon (3.785 liters). This represents an increase of more than 1.5 times compared to the 204.40 cents per gallon recorded during January 16-February 15, the pre-Middle East crisis benchmark used for this month's surcharges.
Fuel surcharges are additional fees that airlines impose on fares to offset losses from rising oil prices. Each airline sets monthly rates through self-adjustment following the Ministry of Land, Infrastructure and Transport's distance-proportional system. The surcharges are divided into 33 tiers and applied when the average Singapore jet fuel price exceeds 150 cents per gallon for international routes. No surcharge is imposed below that threshold.
This month's fuel surcharge is set at tier 6 (200-209 cents). If the Singapore jet fuel average reaches 300 cents per gallon, the surcharge would jump 10 tiers to tier 16 (300-309 cents) within a single month.
Should the average price surge to 370 cents per gallon or higher, the surcharge would reach tier 23 (370-379 cents), exceeding tier 22—the highest level since the current fuel surcharge system was introduced in 2016—which was recorded in July-August 2022. At that time, international oil prices rose steeply due to the Russia-Ukraine war, causing surcharges to jump eight tiers in just three months.
Aviation and travel industry officials expect international flight fuel surcharges to increase substantially next month as the tier rises. Based on Korean Air's rates, the maximum surcharge could rise by tens of thousands of won from the current range of 13,500 won to 99,000 won. During July-August 2022, surcharges ranged from a minimum of 42,900 won to a maximum of 325,000 won.
An aviation industry official said, "Considering that Singapore jet fuel prices briefly surged past $200 per barrel (476 cents per gallon) following the Middle East crisis, we expect next month's tier to jump by at least 10 levels. Consumer ticket prices could rise by more than 100,000 won. Since fuel surcharges are applied based on the ticketing date, we may see increased ticket purchases within this month."
Major global airlines have already raised fuel surcharges following the Middle East crisis. According to Reuters and Bloomberg, Hong Kong Airlines increased its fuel surcharges by up to 35.2% starting March 12. Air India added a 399-rupee (approximately 6,000 won) surcharge on domestic and Middle East-bound flights from the same date, and plans to raise its North America-bound fuel surcharge by $50 to $200 starting March 18.
Domestic airlines are implementing oil price hedging strategies to ease the burden of jet fuel price increases that cannot be fully offset by surcharge hikes alone. Hedging is a technique to reduce risk from future price fluctuations, with airlines minimizing losses by purchasing crude oil in advance or using financial instruments.
Korean Air is hedging up to 50% of its annual projected fuel consumption, while Asiana Airlines has entered into derivative-based hedge contracts covering 30% of its projected fuel consumption.
Low-cost carriers (LCCs), which face greater constraints on hedging and other responses compared to full-service airlines, are expected to suffer more as they have less capacity to reduce price burdens. LCCs lack the resources for large-scale hedging using financial instruments like full-service carriers. While pre-ordering and stockpiling fuel based on price trends is an option, this approach is difficult in the current environment of rapidly rising oil prices.