The airline industry has seen some relief in fuel costs due to a drop in international oil prices following peace negotiations between the U.S. and Iran. However, the benefits are largely offset by a rising won-dollar exchange rate, leaving the outlook for the second half of the year uncertain. While high-value exports like semiconductors are supporting air cargo demand, airlines that have not capitalized on this boom may need to restructure their routes.
According to industry sources, the recent decline in international oil prices has eased the fuel cost burden for airlines, which is their largest expense. The average price of Singapore jet fuel, used to calculate international fuel surcharges, was recorded at 338.3 cents per gallon from May 16 to June 15, down approximately 17.5% from the previous period of 410.02 cents.
As a result, the effects of fuel cost reductions are expected to be reflected starting in the second half of this year. Next month, international flight tickets will see a reduction in the fuel surcharge from 27 to 19 stages. Given the successful peace negotiations between the U.S. and Iran, further reductions in the August fuel surcharge, to be announced in mid-July, are also anticipated.
However, the exchange rate poses a significant challenge. The won-dollar exchange rate remains high, increasing the burden of dollar-denominated costs such as aircraft leasing, operational expenses, and airport fees abroad. On the Seoul foreign exchange market, the weekly closing price for the won-dollar exchange rate was reported at 1,537.0 won, up 10.0 won from the previous trading day. According to the Bank of Korea's economic statistics system, the rate has remained above 1,500 won for 24 consecutive trading days.
To overcome the impact of the high exchange rate, the airline industry is focusing on expanding cargo operations, but the benefits are concentrated among a few airlines. Korean Air and Air Jet (formerly Air Incheon) are seeing a surge in cargo demand due to their dedicated freighter operations. Low-cost carriers (LCCs) like Jin Air, T'way Air, and Air Premia are also utilizing passenger aircraft for cargo transport, but their contribution remains minimal.
An industry insider noted, "During the COVID-19 pandemic, pharmaceuticals and diagnostic kits drove cargo demand, but now semiconductors are filling that gap. The ongoing conflict in the Middle East has also created disruptions in maritime transport, benefiting air cargo indirectly."
Semiconductors are playing a crucial role in sustaining the air cargo market. According to customs statistics from Incheon International Airport, exports of electrical and electronic products, which include semiconductors, reached $24.4 billion in April, a 95.3% increase compared to the same period last year. This category accounted for 50.1% of total exports, which amounted to $48.6 billion. The growth rate for electrical and electronic exports has remained high, with increases of 53.6% in January, 79.8% in February, and 83.7% in March.
However, industry experts believe that reliance on the semiconductor sector for cargo demand may not be sustainable in the long term. Following the merger of Korean Air and Asiana Airlines, there are concerns that some low-profit routes may be naturally adjusted during the restructuring of the domestic airline market.
It is predicted that less profitable regional routes in Japan and Southeast Asia, which have been dominated by LCCs, will be reduced, while long-haul routes to North America and Europe will be optimized.
Yoon Cheol, a professor at Korea Aerospace University, stated, "While international oil prices may stabilize after the war, the exchange rate is a more sensitive variable for the airline industry. If the exchange rate remains high in the third and fourth quarters, it will significantly burden operational profitability."
* This article has been translated by AI.
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