Turbulent Days Ahead for South Korean LCCs

 - October 3, 2019, 10:13 AM
A Jeju Air Boeing 737-800 approaches Hong Kong. (Photo: Flickr: Creative Commons (BY-SA) by Aero Icarus)

A congested South Korean domestic market and suspension of most flights to Japan due to the escalating trade and diplomatic crisis between the two countries coupled with the weak local currency signal turbulent days ahead for the six Korean low-cost carriers (LCCs).

The six airlines—Jeju Air, Eastar Jet, Air Busan, Air Seoul, T’Way Air, and Jin Air—estimate revenue declines of 29 to 40 percent given their past reliance on the Japanese market.

Following the acute drop in travel to Japan, LCCs scrambled to apply to fly to China, Taiwan, and Southeast Asian countries with the hope of making up for the losses.  

Eastar Jet and Air Busan stand to become the two worst-affected LCCs. Last year 47 percent of Eastar Jet’s revenue came from the Japan operation. With hubs at Incheon Airport and Gimpo International Airport, Eastar Jet started flying in 2009. It has operated at a loss for the last five years. As part of a cost-cutting measure, the carrier requested 500 flight attendants go on no-pay leave from October to December. It has also cut all corporate gatherings. According to Eastar official Lee Hong-so, the move was inevitable given the airline’s strained coffers.

Eastar Jet will suspend the Okinawa, Sapporo, and Kagoshima flights from December 1 to March 31 and possibly scrap the routes altogether if demand remains weak. It earlier planned to suspend flights from September to October only.

With the flight attendants on furlough and the suspension of flights, Lee acknowledged that a few of the airline’s fleet of 20 Boeing 737-800s will sit idle. Its two 737 Max 8 jetliners remain grounded.   

With Air Busan suspending all its five flights from Daegu Airport to Narita, Fukuoka, Kansai, Sinchitose, and Kitakyusyu, the airline has ceased operations in Japan completely. Meanwhile, Air Busan and Air Seoul are up for sale. Debt-ridden Asiana holds a 46 percent stake in Air Busan and owns all of Air Seoul.

As the LCCs, Korean Air, and Asiana compete for Korean traffic, the domestic market appears likely to become further fragmented when three new LCCs—Aero K, Air Premia, and Fly Gangwon—enter the market in late 2020 and 2021.