COVID-19 Crisis... 'LCC' Diversifying Revenue Structures (Comprehensive)

Introduction of Medium- and Long-Haul Aircraft in Cargo Planes
"Success Can Be Determined in 3-4 Years"

[Asia Economy Reporter Yoo Hyun-seok] Low-cost carriers (LCCs) are diversifying their revenue structures to overcome the COVID-19 crisis. They are making every effort to defend their performance by introducing cargo planes and aircraft suitable for medium- and long-haul routes.

According to the aviation industry on the 14th, LCC airlines including Jeju Air are introducing cargo planes and medium- to long-haul aircraft.

Jeju Air signed a lease contract for a cargo-only aircraft with an aircraft leasing company yesterday and plans to bring in the cargo-only aircraft in the first half of this year, completing the conversion work by June.

The cargo aircraft to be introduced this time is the ‘B737-800BCF,’ the same model as the aircraft currently in operation. The aircraft, which was used as a passenger plane, has been converted into a cargo-only plane. Jeju Air expects that by introducing cargo planes, it will reduce the costs required to operate cargo flights and expand cargo transportation volume.

Jeju Air obtained an international cargo transportation license in 2012 and started cargo transportation business. In September 2018, it also entered the domestic cargo business starting with the Jeju-Gimpo route. In addition, in October 2020, it conducted cargo transportation using seats inside passenger planes.

T’way Air is preparing to compete with major airlines by introducing a medium-to-large aircraft, the ‘A330-300.’ Starting from the end of next month, the A330-300 will be deployed on the Gimpo-Jeju route and, in line with the resumption of international flights, will operate medium- and long-haul routes such as Singapore and Sydney, Australia, as well as cargo transportation.

New LCC Air Premia has already achieved results in cargo transportation. On December 24 last year, it started international cargo transportation on the Incheon-Singapore route for the first time. It also began operating the Incheon-Ho Chi Minh (Vietnam) route from the 12th of last month. Currently, cargo flights operate 4 to 5 times a week, with Singapore twice a week and Vietnam 2 to 3 times a week. Through this, about 281 tons of cargo were transported last month.

In addition, efforts are being made to recover performance by increasing flights during the Lunar New Year holiday or the bridge holiday on the 1st of next month.

The reason LCCs are diversifying their revenue structures is that their performance deteriorated as international flights were blocked due to COVID-19 and other factors. Additionally, high oil prices make conditions difficult. While major airlines can somewhat defend profitability through cargo transportation, this is a burden for LCCs, which mainly focus on passengers. As of the third quarter of last year, cargo business accounted for 2.2% of total sales at Jeju Air and 3.9% at T’way Air.

According to FnGuide, securities firms forecast Jeju Air’s sales last year at 267.7 billion KRW with an operating loss of 322.5 billion KRW. Sales decreased by 28.99% compared to the previous year, and operating losses are expected to continue. T’way Air’s sales are estimated at 206 billion KRW, down 23.48% from the same period last year, with an operating loss of 155.7 billion KRW. Jin Air’s performance is also poor, with sales and operating losses expected at 234.4 billion KRW and 198.9 billion KRW, respectively, for the same period. Air Busan, which has already announced its results, recorded sales of 176.2 billion KRW and an operating loss of 204.3 billion KRW.

Professor Hwang Yong-sik of Sejong University said, "If LCCs basically transported passengers on short-haul, low-cost routes, now they are experimenting with diversifying their revenue structures in preparation for the post-COVID era. Currently, this is a desperate and self-help measure, but success or failure can be confirmed through performance over the next 3 to 4 years."

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