A sharp rise in the international oil price is becoming a global crucial problem. According to the International Air Transport Association(IATA), the price of jet oil is $111.19 per barrel, which has been the highest level since July 2014. Because of the soaring oil prices, airlines in South Korea are getting great damage.

▲ Soaring International Oil Price

Oil prices in South Korea have increased over 68 percent, which gave massive damage to the airlines in South Korea. In most airlines around the world, about 30 percent of their operating expenses are oil prices for air carriers. According to the performance data, fuel costs accounted for 28 percent of Korean Air's total operating expenses in the fourth quarter of last year, which has an increased level compared to last year. In the case of Korean Air, they use about 33 million barrels of oil in a year, which means that if the price of oil barrels increases a dollar, 33 million dollars in profit and loss will occur.

▲ Korean Air

The reason of the soaring oil prices is the high possibility that western countries including the US may impose sanctions on oil produced in Russia. As the Russian-Ukrainian war enters on the ninth day, Western leaders have frozen the assets of the central bank of Russia to access the $630bn. Also, European countries and the US banned people from dealings with the Russian bank. After the paralysis of the Russian economy, the prices of oil are increasing day by day.

▲ Russian-Ukrainian war

Although aviation industries are preparing for other oil price fluctuations by the "Jet Oil Hedge", which is to purchase a massive amount of jet oil when the price is low, it is hard to stop the poor profitability. Since people using the airlines dropped over 30 percent because of the COVID-19 virus, the damage that airlines are getting is now becoming serious.

2022-03-13 by Jeon Seung Hyun