The World Locks the Sky Routes Again... Thorny Path Ahead Next Year Too

Confirmed Cases of COVID-19 Variant Infections Domestically... Industry on Edge
Crucial Fundraising Efforts Continue Next Year

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Je-hoon] With the emergence of a new variant of the coronavirus disease 2019 (COVID-19) originating from the UK, countries around the world are showing signs of shutting their skies once again. As the COVID-19 situation fails to calm down easily, the aviation industry is bracing for another 'thorny path' for survival next year.

According to Japan's Ministry of Foreign Affairs on the 28th, from this day until the end of January, foreign nationals will be completely banned from entering Japan. This measure comes after some Japanese nationals who recently arrived from the UK were found to be infected with the COVID-19 variant. Compared to other countries responding with flight route closures and mandatory submission of negative COVID-19 test certificates, Japan has taken even stronger measures.

◆Demand Recovery Faces Numerous Obstacles = The domestic aviation industry believes the impact of this measure will not be significant. This is because the Japanese authorities have exempted countries that have signed the 'Business Rapid Entry Procedure (Business and Residence Track)' agreements, including South Korea, China, Singapore, and Taiwan. A representative from a national airline said, "The number of passengers on Japan routes has already decreased to around 15,000 per month," adding, "Since most of the demand is essential business travel, the impact will not be large."

However, concerns remain that, given the new variant’s infectivity is up to 70% higher than the existing virus, countries may further tighten entry controls for the time being. Some Middle Eastern countries such as Saudi Arabia, Kuwait, and Oman have already temporarily closed their borders due to the rapid spread of the COVID-19 variant. On the same day, the COVID-19 variant was confirmed in arrivals from the UK in South Korea as well.

With vaccine development and distribution progressing slowly and the COVID-19 situation not calming down, the timing for demand recovery is being delayed further. For example, the 'Travel Bubble' (a quarantine exemption system between countries with excellent quarantine measures), which countries have been considering to stimulate air travel demand, has not gained momentum. Hong Kong and Singapore, which attempted the first trial, have recently postponed it due to a resurgence of COVID-19.

An industry official said, "There is great expectation for a V-shaped demand recovery after vaccine development, but whether it is actually possible is questionable," adding, "As non-face-to-face culture takes root, business travel demand recovery may be more gradual."

◆Another Thorny Path Next Year = Recent studies by the International Air Transport Association (IATA) and the Korea Transport Institute (KOTI) forecast that air travel demand will recover to last year's level between 2022 and 2024. Therefore, at least one to two years of 'endurance' similar to this year will be necessary.

This year, national airlines have overcome critical moments through asset sales and capital increases. For example, Korean Air, the industry leader, conducted a paid-in capital increase of 1.1 trillion KRW and has sold or is in the process of selling its in-flight catering and onboard sales division, the Songhyun-dong hotel site, Wangsang Leisure Development Co., Je-dong Leisure, and airport limousine businesses. It also received 1.2 trillion KRW from state-run banks to overcome liquidity crises.

However, the crisis is ongoing as a significant amount of funds will need to be repaid or refinanced next year. As of the third quarter, Korean Air’s borrowings due for repayment or refinancing within one year amount to about 5.2 trillion KRW. Considering that Asiana Airlines’ borrowings exceed 2 trillion KRW, additional asset sales and support from state-run banks are inevitable.

Low-cost carriers (LCCs), which have fewer profitable businesses such as air cargo, face even deeper concerns. Although they have eased their situation with paid-in capital increases ranging from 78 billion to 150 billion KRW this year, it is assessed that without additional support and fundraising, it will be difficult to survive beyond the first half of next year. For this reason, Jeju Air received 190 billion KRW in support from the government, including from the Industrial Stabilization Fund.

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