Airline Stocks Unable to Soar Amid Japan Boycott and Wuhan Pneumonia Setbacks

[Asia Economy Reporter Song Hwajeong] Airline stocks are suffering from a series of adverse factors. After suffering losses due to last year's Japan boycott movement, the emergence of negative issues from China since the beginning of the year is expected to further delay the timing of performance recovery.

As of 9:40 a.m. on the 30th, Jeju Air was trading at 21,950 KRW, down 1.79% (400 KRW) from the previous day. Jeju Air hit a 52-week low of 21,500 KRW during trading on the 28th. After six consecutive days of decline since the 17th, it showed a 3% rise the previous day but returned to a weak trend. Korean Air also switched back to a weak trend after just one day. On this day, Korean Air fell 0.21%, showing a slightly weak trend in early trading. Korean Air has dropped more than 8% over the past five days. Asiana Airlines (-0.63%), Air Busan (-1.13%), T'way Air (-1.64%), and Jin Air (-1.05%) also showed declines on the day.

The weakness in airline stocks is due to concerns over demand contraction caused by the novel coronavirus infection (Wuhan pneumonia). As the novel coronavirus spreads, airlines have successively suspended operations on China routes. The previous day, Jeju Air additionally suspended operations on three routes: Incheon~Sanya, Incheon~Nantong, and Incheon~Haikou. Jeju Air had earlier stopped operations on Busan~Zhangjiajie, Muan~Zhangjiajie, and Muan~Sanya routes. Jeju Air, which operates 12 mainland China routes excluding five routes suspended during the winter season, has suspended operations on six routes, half of them, due to the novel coronavirus.

Asiana Airlines also decided to temporarily suspend operations on three China routes starting next month: Incheon~Guilin, Incheon~Changsha, and Incheon~Haikou. Eastar Jet will suspend operations on Cheongju~Zhangjiajie, Jeju~Shanghai, Cheongju~Haikou, and Incheon~Zhengzhou routes until the end of next month. Jin Air has suspended operations on the Jeju~Xi'an route. Korean Air has not operated the Incheon~Wuhan route, which was flown four times a week, since the Chinese authorities decided on the 23rd to ban all flights to Wuhan Airport.

Performance recovery for airlines is expected to be further delayed. Choi Gyo-woon, a researcher at Korea Investment & Securities, said, "Although the proportion of Chinese sales for domestic airlines does not exceed 10%, anxiety is spreading to neighboring countries, and cross-border travel demand will rapidly shrink. The domestic airline industry's performance recovery will inevitably be delayed, and with the Japan travel boycott not yet over, the prolonged poor performance due to weak short-distance passenger demand including China is possible."

According to Korea Investment & Securities, passenger demand during the 2003 Severe Acute Respiratory Syndrome (SARS) and the 2015 Middle East Respiratory Syndrome (MERS) decreased for more than three months. From March to May 2015, international passengers increased by 20% compared to the previous year, but after the MERS outbreak, June and July saw a 14% decline, and the number of foreign arrivals plummeted by 47%. It was only in October that the trend returned to growth.

Even if the Japan boycott and novel coronavirus issues are resolved, the potential for stock price rebound will be limited without industrial restructuring. Researcher Choi said, "Unless this impact leads to market restructuring events such as Jeju Air abandoning the acquisition of Eastar Jet resulting in Eastar Jet's own supply reduction, or Air Busan being put up for resale, the potential for stock price rebound will be limited."

This content was produced with the assistance of AI translation services.