The Aviation Industry Faces Expected Slump... Another 'Bleak' Year Amid New Coronavirus Onslaught

Major Cuts and Suspensions in China Routes by Airlines
"Minimal Recovery in Japan Routes, Southeast Asia Also Sensitive to COVID-19... No Alternatives Available"

On the 4th, a dedicated arrival hall for passengers from China was set up at Terminal 1 of Incheon International Airport, where a monitor displayed information about the novel coronavirus infection. / Yeongjongdo - Photo by Kim Hyunmin kimhyun81@

[Asia Economy Reporter Yu Je-hoon] The aviation industry, already suffering from a predicted 'earnings shock,' is now facing direct impacts from the novel coronavirus infection (Wuhan pneumonia). Amid supply-demand imbalances in key regions such as Japan and Southeast Asia, the situation has worsened as numerous flights on China routes have been suspended or reduced. Industry insiders express concerns that if this crisis is not resolved quickly, improving this year's performance will be difficult.

According to the industry on the 4th, Jin Air recorded sales of 182.2 billion KRW and an operating loss of 60.4 billion KRW in the fourth quarter of last year. While sales decreased by 20% compared to the same period the previous year, operating losses nearly tripled. Consequently, Jin Air's annual sales for last year dropped 9.9% year-on-year to 910.2 billion KRW, and it turned to an operating loss of 49.1 billion KRW. This means Jin Air lost the '1 trillion KRW in sales' milestone it had achieved in 2018 in just one year.

The primary cause of Jin Air's decline is attributed to the management sanctions imposed by the Ministry of Land, Infrastructure and Transport following the 'water cup power abuse' incident involving Cho Hyun-min, Executive Director of Hanjin KAL. Jin Air has been restricted for one and a half years from introducing new aircraft, allocating transport rights, and operating non-scheduled flights.

However, the main reason is the worsening external environment. The boycott of travel to Japan and political instability in Hong Kong, which struck the aviation industry last year, are representative examples. According to Incheon International Airport Corporation, the total number of passengers on all Incheon-Japan routes last year was 11.7% lower than the previous year, totaling 11.85 million passengers (including both domestic and foreign nationals).

Therefore, it is analyzed that other airlines preparing to announce their earnings will face similar situations. The securities industry expects the aviation sector's operating losses in the fourth quarter to reach 89.2 billion KRW for Asiana Airlines, 40.8 billion KRW for Jeju Air, 25.4 billion KRW for T'way Air, and 25.9 billion KRW for Air Busan. Considering these airlines posted consecutive losses in the second and third quarters of last year, an annual operating loss is virtually certain.

The problem is that even the remaining lifeline, the China routes, are experiencing mass suspensions and reductions due to the novel coronavirus crisis. According to the industry, as of the previous day, eight domestic airlines have suspended or reduced a total of 65 routes (41 suspended routes and 24 reduced routes). Since the total number of China routes was 100, nearly 70% of routes have been either suspended or had their flight frequencies reduced.

Specifically, Korean Air and Asiana Airlines have decided to reduce or suspend flights on the Incheon-Beijing route, respectively. This route is considered a major artery with high demand not only for business travel but also for tourism. Air Seoul and Eastar Jet have decided to suspend all mainland China routes entirely.

Industry insiders express pessimistic forecasts that if this crisis is not resolved early, it could expand beyond the 2003 Severe Acute Respiratory Syndrome (SARS) outbreak. This is because the crisis threatens short-haul routes overall, not just limited regions like China. There is no clear 'alternative' either. An industry official explained, "The recovery of demand on Japan routes is still minimal, and while supply-demand imbalance is also an issue in Southeast Asia, route establishment and frequency increases are difficult due to the novel coronavirus. Aircraft utilization rates are inevitably declining, which directly affects profitability."

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