LCC in Crisis, Prolonged COVID-19... No Cash Cow

[Asia Economy Reporter Dongwoo Lee] Due to the prolonged COVID-19 pandemic and the resulting decline in passenger demand, domestic low-cost carriers (LCCs) continue to face deficits. The industry expects this situation to persist until international passenger traffic recovers with the distribution of COVID-19 vaccines in the first half of this year.

According to the aviation industry on the 13th, Jin Air recorded an operating loss of 184.7 billion KRW last year. The operating loss increased approximately fourfold compared to 2019. Last year, revenue dropped 70.1% year-on-year to 271.8 billion KRW, and net loss for the period increased more than threefold to 190.4 billion KRW compared to the previous year (-56.7 billion KRW).

During the same period, Air Busan also saw its operating loss widen about fourfold to 197 billion KRW. Revenue fell 70.1% to 189.4 billion KRW, and net loss expanded 106% to 150.3 billion KRW compared to the previous year.

According to financial information provider FnGuide, Jeju Air, which will announce its earnings on the 15th, is also estimated to have an operating loss of 288.6 billion KRW last year, more than eight times higher than the previous year (-32.9 billion KRW).

T'way Air is also expected to record an operating loss exceeding 100 billion KRW last year. New LCCs such as Fly Gangwon, Air Premia, and Aero K are also expected to post deficits in the thousands of billions of KRW, focusing on securing operating funds.

The LCC industry was hit hard by COVID-19 because more than 90% of their revenue depends on passenger transportation. This contrasts with full-service carriers (FSCs) like Korean Air and Asiana Airlines, which offset losses by shifting to air cargo transportation amid reduced passenger demand.

The problem is that most aircraft owned by LCCs are suitable for short-haul passenger transport, limiting their ability to switch to cargo operations. Since the second half of last year, Jin Air has been strengthening its cargo business by converting passenger planes, and Jeju Air and T'way Air are also making efforts to improve performance by loading cargo in passenger seats.

The delayed recovery of passenger demand due to the prolonged COVID-19 pandemic is another obstacle. The International Air Transport Association (IATA) forecasts that passenger demand this year will remain at about 50% of the 2019 level.

According to Korea Airports Corporation, as of last month, the total number of international and domestic passengers for 13 domestic airlines was 3,138,757, a sharp 77% decrease compared to the same period last year. In particular, international passengers numbered 212,925, down 97% during the same period. Cargo volume also declined 22% year-on-year to 289,556 tons, delaying the recovery trend.

An industry official said, "The aviation industry is struggling due to the impact of COVID-19, and LCCs in particular are in a very difficult situation, surviving on capital alone," adding, "They are waiting for international routes to recover after the distribution of COVID-19 vaccines."

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