Key Points
- South Korean LCCs face a slow recovery in passenger numbers on routes to China, with current figures at only 73% of pre-pandemic levels.
- Top LCCs such as Jeju Air, T’way Air, and Jin Air reported significant financial losses in the second quarter.
- Routes to Japan and Southeast Asia have shown a stronger recovery, with Japan seeing a 16.9% increase in passengers.
- The weak performance of China’s routes poses a risk amid expected industry changes due to the merger of Korean Air and Asiana Airlines.
South Korea’s major low-cost carriers (LCCs) are grappling with a sluggish recovery in passenger routes to China, further exacerbated by persistent financial challenges, including high exchange rates and elevated oil prices. This trend has led to significant declines in earnings for top LCCs such as Jeju Air, T’way Air, and Jin Air during the year’s second quarter.
The latest data from the Ministry of Land, Infrastructure and Transport reveals that the number of passengers traveling from Korea to China between January and July reached 7.59 million. While this is a notable figure, it represents only 73% of the passenger volume recorded in the same period in 2019, before the onset of the COVID-19 pandemic led to widespread disruptions in global aviation.
In contrast, routes to other popular destinations like Japan and Southeast Asia have steadily recovered. For instance, international flight passenger numbers for July reached 7.67 million, or 96.4% of the levels seen four years ago. Among these, passengers traveling to Japan numbered 2.09 million, marking a 16.9% increase compared to the previous period.
The weak recovery in Chinese routes is particularly troubling for South Korean LCCs, which have historically relied on these routes for substantial revenue. T’way Air reported its largest operating loss of 21.5 billion won ($15.87 million) in the second quarter, the worst among Korean LCCs. Jeju Air also faced challenges, ending the period with an operating loss of 9.5 billion won. Although Jin Air managed a small operating profit of 900 million won, it still recorded a net loss of 5.9 billion.
The slow recovery in China poses a significant risk for LCCs, who are pressured to ensure profitable operations. An airline official commented that while most LCCs have not considered abandoning their Chinese routes, the weak recovery in this key market remains a downside risk. It is particularly critical given the upcoming merger of Korean Air and Asiana Airlines, which is expected to result in a major industry reshuffle.
The industry faces macroeconomic uncertainty and financial strain, making it crucial for LCCs to navigate these challenges effectively to maintain their competitive edge and profitability.
