Struggling to Hold On in the Aviation Industry... Numerous Challenges Like Capital Infusion and Demand Contraction Expected Next Year

"Recovery in Demand Will Take an Additional 2 to 3 Years"

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Je-hoon] As the novel coronavirus infection (COVID-19) crisis prolongs, the aviation industry is in the midst of 'enduring' for survival. While focusing on capital expansion through asset sales and paid-in capital increases, they are also engaging in businesses that can cover even a portion of fixed costs.

However, with the dominant forecast that it will take at least 2 to 3 more years for COVID-19 vaccine distribution, inoculation, and the subsequent recovery of air travel demand, domestic airlines face another critical hurdle for survival next year.

According to the Ministry of Land, Infrastructure and Transport's Aviation Information Portal System on the 27th, the cumulative air passengers from January to November totaled 37,459,920, a 66.9% decrease compared to the previous year. Domestic flights 'held up' somewhat with a 22.4% decrease to 23.44 million passengers, but international flights plummeted by 83.1% to 14.01 million due to the impact of COVID-19. Excluding the January to February period when normal operations were possible, the decline in international flights rises to 96%.

Given this situation, domestic airlines have continuously suffered losses. Unlike major airlines that posted profits due to increased air cargo rates amid COVID-19, the four listed low-cost carriers (LCCs) recorded losses ranging from 20 to 60 billion KRW throughout the first to third quarters of this year.

Therefore, the key issue for the aviation industry this year was 'capital expansion.' Korea Air, the industry leader, conducted a paid-in capital increase of about 1 trillion KRW this year and has completed or is pursuing sales of its in-flight meal and in-flight sales divisions, the Songhyeon-dong site in Jongno-gu, Wangsang Leisure Development, Jadong Leisure, and airport limousine business. It also received about 1.2 trillion KRW in funding from state-run banks, escaping this year's crisis. LCCs also raised capital through paid-in capital increases ranging from 70 to 150 billion KRW each.

Various attempts to salvage fixed costs have continued. The 'non-landing sightseeing flight' product, which had previously received little attention, is a representative example. Jin Air, for instance, is selling home meal replacements (HMR) modeled after in-flight meals and even home appliances through shopping malls. This is a desperate effort to secure profitability.

However, the problem is that the situation will not be easy next year either. The International Air Transport Association (IATA) predicts that air travel demand will recover to last year's level by 2024.

Above all, the urgent need for capital expansion next year is cited as a problem. As of the third quarter, Korea Air has 5.2 trillion KRW in funds that must be repaid or refinanced within one year. Considering the financial situation of Asiana Airlines, which is in the process of being acquired, additional support from state-run banks is inevitable. There are also concerns that the funds secured through this year's paid-in capital increases by LCCs will not be sufficient to last beyond the first half of next year.

An industry insider said, "Air travel demand is expected to gradually recover from the end of next year at the earliest, but it will take several years to normalize," adding, "Enduring until then is the challenge for airlines."

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