Demand Contraction Triggered by 'New Coronavirus'... Airlines Begin Downsizing Efforts

Flight Operation Halt on China Routes Causes Aircraft Utilization Drop... Major LCCs Implement 'Voluntary Leave'
Consumers Demand 'Cancellation Fee Waiver' Amid Worsening Situation

On the 10th, amid ongoing concerns about the spread of the novel coronavirus infection, taxis lined up waiting for passengers at the international terminal taxi stand in front of Seoul Gimpo Airport. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Yu Je-hoon] The aviation industry is the hardest hit sector by the novel coronavirus infection (Wuhan pneumonia) crisis. This comes amid ongoing issues such as the boycott of travel to Japan last year and supply-demand imbalances in the short-haul market. With another major adverse factor emerging, national airlines are recently implementing voluntary leave programs and downsizing to prepare for a sharp downturn in the industry.

According to Incheon International Airport Corporation on the 11th, the number of international passengers (paid passengers) at airports nationwide last month was approximately 7,881,507, down about 1.7% compared to the same period last year. Air cargo volume also decreased by 4.9% to 231,000 tons. The main causes of the decline in air passenger and cargo demand are cited as the boycott of travel to Japan due to Korea-Japan tensions and a reduction in cargo volume caused by the global economic slowdown.

Furthermore, the industry expects the impact of the novel coronavirus crisis to be reflected starting this month. The suspension of flights on China routes due to the novel coronavirus crisis began in earnest from early this month. From the 1st to the 10th, the number of passengers at airports nationwide was 1,770,273, nearly 1 million fewer than the same period last year.

In particular, the fact that demand contraction is spreading to other short-haul routes beyond China is adding to the industry's concerns. This is due to the reality of "third-country infections," where travelers visiting Thailand and Singapore have been diagnosed with the novel coronavirus. Some Southeast Asian flights have recently seen load factors (L/F) drop to levels as low as 20-30%.

Domestic routes are no exception. Recently, a Korean national airline sold tickets for the Gimpo-Jeju route for as low as 2,880 KRW. The Gimpo-Jeju route is a representative profitable route with a load factor exceeding 90% under normal circumstances. Professor Lee Hwi-young of Inha Technical College explained, "Consumers are reacting more sensitively because they have already experienced the 2003 Severe Acute Respiratory Syndrome (SARS) and the 2015 Middle East Respiratory Syndrome (MERS)."

The aviation industry, pushed to the brink of collapse, is actively pursuing "downsizing." Jeju Air plans to implement a one-month voluntary leave system for cabin and flight crew starting in March. T'way Air and Air Seoul are also accepting voluntary leave applications from all employees. Eastar Jet has been operating an unpaid leave system for up to three months since the 15th.

An industry insider said, "Although aircraft utilization rates have dropped due to the suspension of China routes, the recovery of short-haul markets such as Japan and Hong Kong is slow, and Southeast Asian routes are difficult to increase flights or launch new routes due to oversupply. This is a desperate measure in a situation with no alternatives."

Meanwhile, cancellations of flight reservations are continuing on routes other than China, leading to frequent disputes. The Korea Fair Trade Commission recently encouraged the airline and travel industries to expand fee waivers for flight cancellations related to the novel coronavirus crisis. While national airlines are waiving cancellation fees for tickets to Greater China, consumer complaints are pouring in demanding the same for other routes. Airlines are thus facing a double burden following the demand slump.

The industry, enduring losses due to the decline in demand on China routes, is in a difficult position. An industry official said, "For China routes, cancellation fees are being waived following the Ministry of Foreign Affairs' Level 2 travel advisory, but there is no clear basis for other regions."

Professor Heo Hee-young of Korea Aerospace University stated, "As China's economic influence grows, the ripple effect on the aviation and travel industries has become significant. Even if the novel coronavirus crisis subsides this month or next, it will take time for demand to fully recover."

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