Korea’s airline industry has diametric Q1 with LLCs hit by forex turbulence

A plane takes off at Incheon International Airport on Feb. 2. [YONHAP]

 
Korea’s airline industry posted sharply divergent results in the first quarter, as long-haul routes and a rebound in cargo helped full-service carriers to record-high sales, while low-cost carriers (LCCs) suffered from steep increases in leasing costs due to the weak won.
 
Korean Air reported revenue of 3.96 trillion won ($2.8 billion) in the first quarter, up 3.5 percent on year, while Asiana Airlines posted revenue of 1.74 trillion won, a 6.7 percent increase, according to filings with the Financial Supervisory Service on Sunday. Both companies recorded their highest-ever first quarter sales.
 
Still, Korean Air’s operating profit during the January-to-March period fell 19.5 percent from a year earlier to 350.9 billion won, as costs climbed with the introduction of new aircraft.
 
Asiana Airlines, meanwhile, narrowed its operating loss to 7.9 billion won, improving by 23.3 billion won compared to the same period last year. The company also returned to profitability on a net basis.
 
By contrast, budget airlines saw earnings plunge. Jeju Air, the country’s largest LCC, posted an operating loss of 32.6 billion won for the quarter. The airline cut its flight operations by 14 percent from a year earlier following a devastating accident at Muan Airport last December, which significantly reduced seat capacity and revenue.
 
T’way Air swung to a 35.5 billion won operating loss after generating 76.1 billion won in operating profit in the first quarter of 2024. Jin Air and Air Busan saw their profits drop by more than 40 percent on year, recording 58.3 billion won and 40.2 billion won in operating profit, respectively.
 

Travelers wait in line to check in at a counter for a low budget airline at Incheon International Airport on July 7, 2024. [NEWS1]

 
One major headwind for LCCs has been the sharp depreciation of the won. Compared to full-service carriers, LCCs rely more heavily on leased aircraft, paid for in dollars.
 
The average exchange rate during the first quarter was 1,453 won to the dollar, up 125 won from a year earlier. With lease and fuel payments made in dollars, the industry is highly sensitive to exchange rate fluctuations.
 
Korean Air estimates that a 10-won drop in the value of the won against the dollar results in a 27 billion won increase in foreign exchange losses. That pressure is even greater for LCCs, which have higher lease exposure relative to their scale.
 
To boost performance, LCCs are now turning their attention to China routes, which are seeing a surge in demand.
 
The number of passengers flying between Korea and China between January and April reached 4.86 million, a 23.5 percent increase from the same period last year, according to the Ministry of Land, Infrastructure and Transport on Saturday. The number of flights also rose 10.9 percent to nearly 37,000.
 
The increase outpaced growth on Japanese routes, where passenger volume rose 10 percent and flights increased 9.6 percent.
 

A Chinese airline’s workers help travelers check in at the carrier’s counter at Incheon International Airport’s Terminal 1 on Feb. 24. [NEWS1]

 
Much of the spike in China-bound travel stems from Beijing’s visa-waiver policy. Since late last year, China has been waiving visa requirements for travelers holding ordinary passports from nine countries, including Korea. The program will run through the end of 2025.
 
Jin Air will resume its Incheon-Qingdao service on May 30, after a hiatus of more than two years. Aero K Airlines plans to begin regular service between Cheongju and Qingdao later this month. Jeju Air also intends to bolster its China network, resuming service on the Jeju-Xi’an route and increasing frequencies on others.
 
“We expect demand to grow thanks to China’s visa-free entry policy and plans to expand no-visa group tours,” a Jeju Air spokesperson said. “In addition to routes from Incheon, we will strengthen our regional connections from cities like Jeju and Busan to better serve travelers between Korea and China.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY PARK YOUNG-WOO [[email protected]]