Donald Trump, the U.S. president's tariff shock has caused chaos in the aviation industry. While international oil prices have dropped to around $60 per barrel (1 barrel is 158.9 liters), the burden of fuel costs has decreased, but the exchange rate of the won against the dollar has sharply risen. There are also forecasts that if the economy contracts due to indiscriminate tariffs, transportation volumes and freight rates may decrease.
As of 3:30 p.m. on the 9th, May futures for West Texas Intermediate (WTI) crude oil are trading at $57.90, down $2.10 (3.52%) from the previous day. June futures for Brent crude have decreased by $1.58 (2.52%) to $61.24.
Fuel costs account for about one-third of the total operating expenses of airlines, so a drop in international oil prices significantly reduces the cost burden. Korean Air spent 4.9808 trillion won on fuel last year, which accounted for 28% of its operating expenses (17.8707 trillion won). Asiana Airlines also incurred fuel expenses of 2.5567 trillion won, approximately 30% of its annual revenue (8.3185 trillion won) last year.
The fuel surcharge paid by customers has also decreased. Korean Air decided to lower its fuel surcharge starting in April. For routes such as Incheon to Shanghai and Beijing, the surcharge dropped from 30,000 won in March to 21,000 won, while long-distance routes from Incheon to New York, Dallas, and Boston fell from 132,000 won to 99,000 won. Asiana Airlines' route-specific fuel surcharges have also been reduced from 18,800 won to 107,200 won to 14,500 won to 78,100 won. This is due to a decline in the Singapore kerosene prices, which serve as the benchmark for the surcharge.
Although fuel costs have decreased, the surge in the won-dollar exchange rate, which has spiked to the late 1480s, is a burden. Airlines typically pay for renting or purchasing aircraft and equipment in dollars. When using foreign currency liabilities, an increase in the value of the dollar results in a rise in interest and principal, leading to losses. Cho Won-tae, chairman of Hanjin Group, noted, "The biggest impact on Korean Air comes from the exchange rate."
For Korean Air, a 10 won change in the exchange rate leads to a fluctuation of 35 billion won in foreign currency evaluation gains and losses, as well as 16 billion won in cash, totaling 51 billion won. Asiana Airlines also sees its pre-tax net income fluctuate by 51.92 billion won with every 10% change in the exchange rate. Airlines enter into option contracts for hedging (risk avoidance), but if the exchange rate increases in the long term, the financial burden inevitably grows.
The potential decline in passenger and cargo demand during an economic recession is also a burden. If the U.S. abolishes the small duty-free system on imported goods from China starting next month on the 2nd, transportation volumes may decrease. Yang Seung-yoon, a researcher at Eugene Securities, stated, "If tariffs are imposed, cargo volumes may decrease due to economic slowdown. The performance forecasts for U.S. airlines are also trending downward."