[Into the Stocks] Unlocking the Sky... Jeju Air Spreads Its Earnings Wings

[Asia Economy Reporter Lee Myunghwan] Domestic low-cost carriers (LCCs) have been hit hard by the COVID-19 pandemic over the past two years. With air routes blocked, the number of flights rapidly decreased, causing significant damage. Jeju Air, the leading LCC in the industry, was no exception, posting a loss of over 330 billion KRW in 2020 alone. However, with international flights reopening recently, expectations for Jeju Air's reopening (resumption of economic activities) are growing.

According to the Korea Exchange on the 30th, Jeju Air closed at 20,700 KRW on the 27th, up 9.23% from the previous trading day. This was influenced by the Japanese government's announcement allowing inbound overseas travelers. Japanese Prime Minister Fumio Kishida announced on the 26th that from June 10, group tourists through travel agencies would be prioritized for inbound travelers. Relatively short-haul flights to Japan are the main routes for LCCs, including Jeju Air.

Jeju Air's recent annual performance has been poor due to the impact of COVID-19. Following a shift to losses in 2019 due to deteriorating Korea-Japan relations, the pandemic significantly increased the deficit. Jeju Air's operating loss, which was 32.9 billion KRW in 2019, ballooned to 335.8 billion KRW in 2020, nearly a tenfold increase. Conversely, revenue, which exceeded 1 trillion KRW in 2019, fell back to the 300 billion KRW range in 2020. On the 12th, the company also decided to issue 79 billion KRW worth of private placement perpetual bonds to strengthen capital.

Nevertheless, considering Jeju Air's cash holdings and net outflow scale, securities firms diagnose that there is no cash liquidity problem. According to Hanwha Investment & Securities, Jeju Air's monthly net cash outflow in the first quarter of this year was around 20 billion KRW. Thanks to the 150 billion KRW support from the Industrial Stabilization Fund in December last year, there is no immediate concern about capital erosion.

The move to resume overseas travel amid the transition of COVID-19 to an endemic phase is also positive. The government announced a 'gradual return to normal for international flights' plan last month, aiming to increase international flight operations to 50% of pre-COVID levels by the end of this year. Park Sooyoung, a researcher at Hanwha Securities, analyzed, "The resumption of travel to Asian countries such as Japan will act as a strong momentum for domestic LCC stock prices again," adding, "Furthermore, if performance visibility is confirmed from the second quarter, the positive momentum could be prolonged."

There is also a forecast that performance recovery will be possible starting next year. Although Jeju Air recorded the largest losses among domestic LCCs due to fixed costs from having the most aircraft, it is expected that the recovery speed will be faster once international flights normalize. Chaeyoon Seok, a researcher at IBK Investment & Securities, predicted, "Jeju Air's revenue in 2023 will be 1.6 trillion KRW, and operating profit will turn positive at 149.9 billion KRW," adding, "In 2023, when international flights are expected to normalize, the recovery resilience will be the highest."

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