Peak Season Effect Only Brief... LCCs on Alert Amid Signs of COVID-19 Resurgence

Domestic Passenger Flights Up 7.7% Year-on-Year from 1st to 17th
"Long Monsoon Season Limited Gains... Concerns Over Remaining Peak Season Operations"

On the 14th, the domestic terminal at Gimpo Airport in Seoul is bustling with travelers taking advantage of the golden holiday weekend./Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Yoo Je-hoon] Low-cost carriers (LCCs) are on edge due to a new cluster infection of the novel coronavirus disease (COVID-19) that erupted at the tail end of the peak season. They had rapidly increased domestic flight supply in preparation for the summer peak season, but concerns are growing that passenger demand could plummet again like it did in February and March as COVID-19 shows signs of resurgence.

According to the aviation industry on the 18th, the number of domestic passengers using 14 airports nationwide from the 1st to the 17th of this month was recorded at 3,537,270. Although this represents a 26.9% decrease on a cumulative basis since the beginning of the year, the figure for the 1st to the 17th of this month shows a 7.7% increase compared to the same period last year (3,283,143 passengers).

The increase in passenger numbers in early this month is due to travel demand shifting domestically after the COVID-19 outbreak. Domestic LCCs have actively responded by expanding to inland routes in preparation for this. Although the decrease in demand has caused fares to fall below the published levels, which does not significantly help profitability improvement, the aim is at least to cover liquidity and fixed costs.

However, with an unprecedented 54-day rainy season continuing since last month and signs of COVID-19 resurgence in the latter half of the peak season, LCCs that had expanded domestic flights are now facing a difficult situation. Depending on the increase in confirmed cases, travel sentiment and demand could sharply decline again as it did during the Shincheonji Church of Jesus cluster infection incident in February and March. Right after the Shincheonji cluster infection incident, domestic passenger numbers in February and March dropped by 49% compared to the previous year, totaling about 2.63 million. Coupled with the suspension of international flights, each LCC experienced a massive 'earnings shock' ranging from 40 billion to 80 billion KRW in the second quarter.

In particular, if the social distancing level, which has been raised to level 2, is raised again, a decrease in passenger demand is inevitable. A representative from a domestic LCC said, "Although the number of domestic passengers increased entering the peak season, it is true that we did not see much benefit due to the unusually long rainy season," adding, "The remaining peak season operations until early September after the holidays were important, but COVID-19 has made even that uncertain."

Accordingly, each LCC is pushing for cost reduction measures such as pre-submitting applications for unpaid leave employment retention subsidies, while focusing on capital injections through paid-in capital increases. Since the COVID-19 situation is expected to continue in the medium to long term, the intention is to build a solid foundation. An industry insider said, "The authorities are discussing extending the (paid leave) employment retention subsidy for about 60 days, but even then, support will end around October to November, so it will inevitably be limited," adding, "Since the likelihood of COVID-19 being resolved during that time is low, securing cash reserves is a critical phase for all companies."

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