LCCs Increasing Domestic Market Share, "Profitability Improvement Remains Distant" Hollow Victory

From This Day, Q2 Earnings Announcement
Many LCCs Forecast Consecutive Losses

As the peak vacation season begins, the domestic terminal at Gimpo Airport in Seoul is bustling with travelers on the 2nd. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Yoo Je-hoon] Due to the impact of the novel coronavirus infection (COVID-19) crisis, the domestic route market share of low-cost carriers (LCCs) has recently surged. This is the result of a combination of factors including the expansion of domestic routes due to the suspension of international flights, the shutdown of Eastar Jet, and the reduction of supply by major airlines. However, despite this sharp increase in market share, the dominant assessment is that it is a "bitter-sweet situation" as the effects of demand shortage caused by COVID-19 and selling prices below the publicly announced fares continue.

According to the Ministry of Land, Infrastructure and Transport's Aviation Information Portal System on the 5th, the domestic passenger transport market share (based on departures) of Korean LCCs in the second quarter (April to June) of this year increased by 0.6 to 7.2 percentage points compared to the previous year. The airline with the largest increase was T'way Air, which rose by 7.2 percentage points from the previous year to 16.1%, ranking fourth among all Korean carriers. Jeju Air also rose to second place with a 2.9 percentage point increase to 17.2% market share.

This is the result of Eastar Jet's shutdown and the supply reduction by major airlines. Eastar Jet, which recorded a 9.1% transport market share in the second quarter of last year, suspended domestic flights as of March 24. Korean Air also reduced its supply to about half compared to the previous year, resulting in a 7.3% decrease in market share. Although other Korean carriers generally reduced their total supply, the supply cuts by these two airlines offset that reduction.

This trend has accelerated further since last month (July), when supply recovered to 99% and demand to about 90% as the spread of COVID-19 subsided. LCCs, whose international flights were suspended, aggressively increased domestic flights by scheduling irregular flights ahead of the summer vacation season. In fact, last month, Jeju Air held an 18.7% domestic market share, T'way Air 17.6%, and Jin Air 16.3%, with LCCs sweeping the top three positions. The combined market share of the six LCCs reached 70.7%.

As a result, cases of "team kill" (a neologism meaning attacking one's own side) have also increased recently. Representative examples include Air Seoul entering the Gimpo-Busan route, which is Air Busan's "territory," and Korean Air and Jin Air operating on the same route at similar times. A representative from a major airline said, "Previously, major airlines operated certain routes more for regional transportation welfare than profit, but now LCCs are entering those routes, causing losses due to fare differences."

However, despite this rapid expansion of domestic market share, LCCs are not seeing much profit. This is because demand has not fully recovered due to the impact of COVID-19. Although the summer peak season has recently begun, air ticket selling prices have still not recovered to last year's levels. The prolonged rainy season has also been pointed out as a limitation, as it has prevented the expected demand recovery.

Starting today, the second-quarter earnings of LCCs, which will be announced sequentially, are expected to show continuous losses. According to the securities registration statement of Jeju Air, the industry's number one LCC, the consolidated operating loss for the half-year is expected to be 150.5 billion KRW, with a loss of about 84 billion KRW expected in the second quarter alone. Large-scale losses are also inevitable for Jin Air, T'way Air, Air Busan, Air Seoul, and Fly Gangwon.

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