Korea's two big airlines get rid of fuel surcharges

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Korea's two big airlines get rid of fuel surcharges

Passengers using the country’s national flag carriers will not have to pay fuel surcharges either for domestic or international flights starting next month, thanks to low international oil prices.

It is the first time that the fuel surcharge has been removed from both domestic and international fights.

But fares remain stubbornly high.

As of Wednesday, an Asiana Airlines round-trip economy ticket from Seoul to New York was 2.105 million won ($1,732), while the same ticket on Korean Air (KAL) cost 2.103 million won, which is similar to prices in 2014. A round-trip ticket from Seoul to Paris is 1.937 million won on Asiana and 1.942 million won on KAL.

“One of the reasons prices don’t fall is labor costs,” said Heo Eui-young, a professor in the Korea Aerospace University’s aviation and management department. “Labor costs account for about 30 percent of an airline’s entire business, and other expenses related to risk management also are a big part of the business. That means the business doesn’t have a structure to flexibly adjust ticket prices for such economic trends [as oil price deflation].”

Travel agencies and online travel sites that offer discount promotions are another factor.

Using a travel agency or an open market such as Interpark, consumers are able to purchase a ticket at a 30 to 50 percent discount from the airline companies’ web sites.

For international flights, about 80 percent of airlines’ sales were made through such channels last year.

“We don’t think people purchase tickets at prices offered on our webpage since there are many discounts being offered by those agencies thanks to fierce competition,” said a spokesman of KAL.

Some say airlines should lower the “official” ticket price on their websites so travel agencies and online sellers can lower prices as well. The “official” price of an economy seat for a Korean Air round-trip ticket from Seoul to New York is 4.769 million won, which hasn’t been adjusted since Aug. 1, 2010.

While the fares stayed steady as oil prices fell, the operating profits of airline companies have been increasing. Operating profit for Korean Air in the third quarter of last year was 289.5 billion won, a 20 percent rise from a year earlier. Asiana’s operating profit in the quarter rose by 5.5 percent year on year to 69.3 billion won.

Official fares can’t be solely decided by the companies. They submit fares to the International Air Transport Association and they are then approved by the Ministry of Land, Infrastructure and Transport. Airline companies said it might be risky to lower prices due to the falling oil price.

“We didn’t raise the basic fare in the early 2010s when the oil price was rising rapidly,” said a spokesman of Korean Air.

The company said falling oil prices, while they have positive traits, didn’t greatly help the companies’ profit and loss statements since other factors were negative, such as the weakening Korean won.

BY KWON SANG-SOO [kwon.sangsoo@joongang.co.kr]
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