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askST: Why are there still fuel surcharges for air tickets when crude oil prices have fallen?

Reader Brent Morgans wrote to askST to point out that Singapore Airlines is still charging fuel surcharges, "sometimes up to 30 or 40 per cent of a fare", but crude oil and jet fuel prices have been declining for a long time now.

Aviation correspondent Karamjit Kaur explains why fuel surcharges are being imposed.

Oil prices are the lowest in more than a decade but airfares have not fallen in tandem and travellers are asking why.

With the exception of a few countries, including China and Japan, where fuel surcharges are regulated by the government, airlines everywhere else are free to make their own decisions.

There are several reasons why many, including Singapore Airlines (SIA), have not cut their charges.

Hedging, where airlines lock in a portion of their required future needs at an agreed price, is a key factor.

What this means is that the fuel price the airlines are paying today are often based on prices they committed to before the fall in oil prices.

So even though oil prices have fallen, airlines are still not experiencing the full benefits of the lower oil prices.

SIA, for example, has hedged about 65 per cent of its fuel needs for the period from last October to this March at an average price of US$116 per barrel.

This is more than double the current price of jet fuel.

Apart from hedging, the impact of sharp falls in some currencies against the US dollar over the past 18 months has also offset the drop in oil prices.

The other reason airlines have not cut surcharges is because they don't see the need to.

Aviation analyst Shukor Yusof of Endau Analytics, said: "Indeed, ticket prices at many full-service carriers remain firm and the airlines understandably show little desire to slash fares when demand continues to be strong."

More askST stories here.