Rising FSC and Falling LCC... Airline Performance Polarization in Q2

[Asia Economy Reporter Yoo Hyun-seok] The polarization between full-service carriers (FSC) and low-cost carriers (LCC) in the aviation industry is expected to deepen in the second quarter. While FSCs are expected to improve their performance due to continued strong cargo operations, LCCs are projected to see a wider operating loss due to high fuel prices.

According to FnGuide, a financial information company, securities firms estimate that Korean Air's second-quarter revenue and operating profit will be 3.1 trillion KRW and 543.1 billion KRW, respectively. This represents a 54% increase in revenue and a 180.6% increase in operating profit compared to the same period last year. Korean Air's performance outlook continues to rise. Compared to one month and three months ago, revenue increased by 5.35% and 9.54%, and operating profit rose by 48.71% and 19.57%, respectively. Asiana Airlines is also expected to record revenue of 1.349 trillion KRW and operating profit of 66 billion KRW, up 36.95% and 18.07% respectively over the same period.

The strong performance of FSCs is still driven by solid cargo operations. According to NH Investment & Securities and Incheon International Airport Corporation, Korean Air and Asiana Airlines transported 360,706 tons and 157,432 tons of cargo in the second quarter, respectively. Although these figures represent decreases of 9.24% and 11.83% compared to the same period last year, they remain at high levels compared to 2020.

The reopening of international routes is also a positive factor. Last month, the number of international passengers at nationwide airports reached 1.287 million, a 418% increase compared to the same period last year. Domestic passengers also increased by 6% to 3.23 million. Korean Air and Asiana Airlines transported 359,074 and 253,190 international passengers last month, up 343.2% and 398.9% year-on-year, respectively.

On the other hand, the outlook for LCCs is bleak. Jin Air is expected to record second-quarter revenue of 123.3 billion KRW and an operating loss of 29.8 billion KRW. While revenue is projected to increase by 94.59% year-on-year and operating losses to decrease, the loss is larger than the previous forecast of 25.5 billion KRW made one month ago.

Other LCCs show similar trends. Jeju Air and T'way Air are expected to post second-quarter revenues of 163.1 billion KRW and 113.1 billion KRW, up 117.08% and 99.19% year-on-year, respectively. Their operating losses are expected to decrease to 48 billion KRW and 24.7 billion KRW, respectively, compared to the same period last year. However, many companies have revised their forecasts to expect larger deficits than previously anticipated.

This is largely attributed to soaring jet fuel prices. Fuel costs account for 30% of airline revenues. With jet fuel averaging $143 per barrel in the second quarter and remaining at high levels, it inevitably burdens LCCs, which have weaker cargo operations. The recovery of short-haul routes, such as China and Japan, which are key routes for LCCs, is delayed, making second-quarter performance improvement unlikely.

An industry insider said, "Full-service carriers are expected to perform well due to cargo and international passenger recovery," but added, "LCCs will likely see poor performance as short-haul route recovery remains slow." He further noted, "From the third quarter, performance is expected to improve due to the peak season and international route recovery."

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