Korea's fuel surcharge jumps seven levels to 21, pricing September off August's jet fuel

Korea's international fuel surcharge for September has been set at level 21, seven steps above August's level 14 in the space of a single month, according to the airline industry on the 18th ^[1]. The number that produced that jump is already history: the September level is calculated from the Singapore MOPS jet fuel average for July 16 to August 15, which came in at $149.29 a barrel, up $30.23 or 25.4% from the $119.06 average behind the August surcharge ^[2].

The pass-through is concrete. Korean Air will charge 48,000 to 354,000 won per one-way international leg on tickets issued between September 1 and 30, about 36% above this month's 35,200 to 259,200 won band ^[3]. Fukuoka and Qingdao are 48,000 won, Tokyo and Beijing 66,000, Bangkok, Singapore and Ho Chi Minh City 153,000; London, Paris and Los Angeles run 325,500 won a leg and New York and Washington 354,000 ^[4]. A New York round trip therefore carries 708,000 won of surcharge before the fare itself ^[4]. Against August, the round-trip increase is 189,600 won to the U.S. East Coast and 199,800 won to the West Coast and Western Europe ^[5]. Worth noting for anyone modelling this: the West Coast leg rose 99,900 won, or 44.3%, versus 94,800 won and 36.6% on the East Coast, so the grid does not step proportionally ^[5].

That grid is also why the surcharge outran its input. Fuel moved 25.4% ^[2] and the international band moved about 36% ^[3], roughly 10.6 points more ^[1]. The domestic surcharge, set on the 5th at 20,900 won by Korean Air and Asiana and matched by Jin Air, rose 26.7% from 16,500 won, much closer to the underlying fuel move ^[7].

Meanwhile the spot market has turned. The Financial Times reported on the 18th that the northwest European jet fuel benchmark, which spiked to $1,900 a ton after February's outbreak of the Iran war, is back near $1,300 ^[8], about 32% off that peak ^[2]. Brent topped $114 in March and has recently traded below $90 ^[9], a decline of more than 21% ^[3]. None of that reaches a September ticket: a ticket issued on September 30 is priced off fuel that stopped being measured on August 15, a gap of 46 days ^[7].

The base fare is not helping either. Rick Lewis of Boston Consulting Group told the FT that carriers do not want any single one of them to cut first in the late-summer booking market, describing a standoff ^[10]. Air France-KLM chief executive Ben Smith said aviation is a low-margin business with single-digit operating margins and that the airline wants to hold fares as high as it can for as long as possible ^[11]. Demand is cooperating. Alaska Airlines chief executive Ben Minicucci estimated passengers are paying 10% to 20% more than a year earlier ^[12], and AirAsia raised fares by about a third for a demand drop of only about 10% ^[13]. IAG chief executive Luis Gallego told the FT that fares reflect supply and demand rather than fuel alone, and that the group has been cutting capacity this year ^[14].

What to watch is the next window. If the one-month calculation period rolls forward, the October surcharge is set off August 16 to September 15 ^[6], the first stretch that captures the fall in jet fuel. That is the test of whether the mechanism reverses as fast as it climbed, and whether carriers let surcharges fall while holding base fares. The level to measure against: September's 48,000 to 354,000 won band is about 3.6 times March's 13,500 to 99,000 ^[6].