Aviation Industry Turns Pale Facing Closed US Doors... "Bold Support Needed"

Immediate impact uncertain... "Contraction of linked transport demand inevitable"

On the 19th, a passenger wearing a mask at Incheon International Airport Terminal 1 departure hall is looking at the departure flight information board, which is more than half empty. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Yoo Je-hoon] The United States, where the number of confirmed cases of the novel coronavirus infection (COVID-19) has surpassed 10,000, raised its global travel advisory to the highest level, 'Level 4: Do Not Travel,' on the 19th (local time), deepening concerns in the aviation industry. This is because additional demand contraction has become inevitable after the last lifelines, the routes to the Americas and Europe, also underwent massive suspensions and reductions. Industry insiders unanimously agree that it is now time for the government to take bold measures, rather than just "dongjokbangnyo (凍足放尿)"?a Korean idiom meaning ineffective or trivial actions.

According to the aviation industry on the 20th, two major domestic full-service carriers (FSCs) currently operate only a total of 11 routes to the United States. Korean Air has suspended its Boston, Dallas, and Seattle routes out of 12 U.S.-bound routes, maintaining only 8 routes, while Asiana Airlines has suspended its Seattle and San Francisco routes out of 5, maintaining only 3 routes. Most of the remaining routes are also operating with reduced frequencies.

This upgrade of the U.S. Department of State's travel advisory is a 'recommendation' aimed at its citizens, so the entry and exit of domestic and foreign nationals are not immediately halted. However, since the U.S. Department of State warned that travelers "may face an indefinite timeframe of waiting outside the United States," the prevailing interpretation is that further demand contraction is inevitable.

Domestic airlines are also concerned that the already reduced passenger demand may shrink further. A senior official at Korean Air said, "It is too early to make assumptions as we still need to check reservation statuses, but we cannot rule out the possibility of additional flight reductions in the future," adding, "Although U.S. entry for Korean nationals is not currently blocked, it will definitely affect connecting traffic demand (e.g., U.S.↔Southeast Asia), which accounts for nearly half of the U.S. route demand."

As the already diminished demand is likely to shrink further, the overall industry performance outlook is deteriorating to the worst. In fact, as of the fourth quarter of last year, Korean Air's passenger revenue from U.S. and European routes accounted for 29% and 19%, respectively, totaling 48%. If the short-haul markets such as China, Japan, and Southeast Asia collapse further and the skies to the Americas and Europe shrink as well, major airlines will inevitably face an existential crisis.

The situation is even worse on European routes, where COVID-19 is rapidly spreading. Korean Air currently maintains only two routes: Incheon-Paris and Incheon-London. Asiana Airlines currently operates only the Incheon-Frankfurt route but plans to suspend it for 16 days starting early next month. If the Incheon-Frankfurt route is suspended, Asiana Airlines will have completely halted all European routes.

Therefore, the industry agrees that bold government measures are necessary. The existing financial support of 300 billion KRW targeted at low-cost carriers (LCCs), along with landing fee and parking fee reductions, are considered mere "temporary fixes" that do not address the core issues. Especially as the won-dollar exchange rate has soared to the 1,300 KRW level, the debt burden of airlines sensitive to exchange rates is expanding day by day.

Countries overseas continue to provide full support to their aviation industries. The United States has introduced an emergency relief package worth a total of 50 billion USD (approximately 62 trillion KRW) for the aviation industry, along with a 4 billion USD (approximately 5 trillion KRW) financial support plan to resolve liquidity issues. Germany and France are also reviewing unlimited financial support and an 1.1 billion euro (approximately 1.5 trillion KRW) secured loan for their national flag carriers Lufthansa and Air France, respectively.

An industry insider said, "While LCCs are running out of operating funds, FSCs are under urgent pressure to repay debts related to aircraft purchases," adding, "At this rate, issuing commercial paper (CP) or asset-backed securities (ABS) may not be easy, so government (state-run banks) guarantees are desperately needed."

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