Completing Legacy Carrier Integration and Increasing Medium-Short Distance Flights... 'LCC' Aiming for a Comeback

Jeju Air, T'way Air, and Air Busan Conduct Capital Increase This Year
Travel Opens with Eased Quarantine in Japan and Taiwan, "Route Expansion Underway"

[Asia Economy Reporter Yoo Hyun-seok] Low-cost carriers (LCCs) such as Jeju Air, T'way Air, and Air Busan, which had been struggling through rights offerings amid the COVID-19 pandemic that blocked air routes, are now making a turnaround. As countries like Japan and Taiwan, which were major sources of revenue, have eased restrictions by allowing visa-free travel, these airlines are expanding their routes in hopes of recovering their performance.

According to the aviation industry on the 3rd, Jeju Air, T'way Air, and Air Busan have conducted or completed rights offerings this year. The total amount raised through these fundraisings is 550 billion KRW. First, Jeju Air is scheduled to open subscription for a rights offering worth 306.4 billion KRW on the 3rd of next month. With the funds secured, it plans to sequentially introduce 40 units of Boeing's next-generation model B737-8 starting next year. Additionally, Air Busan recently raised 133.9 billion KRW through a rights offering, and T'way Air secured 121 billion KRW in April.

LCCs experienced continuous performance deterioration due to the blocked air routes caused by COVID-19. In the second quarter, Jeju Air recorded an operating loss of 55.7 billion KRW, T'way Air 29.5 billion KRW, and Air Busan 21 billion KRW. Especially, with ongoing deficits since the COVID-19 outbreak, as of the first half of this year, Jeju Air's debt ratio stood at 863.5%, T'way Air at 963.1%, and Air Busan was in a state of complete capital erosion, indicating a rapidly deteriorated financial structure. However, this rights offering has provided them with some financial stamina to endure.

In particular, the easing of quarantine measures in countries located in mid- to short-distance regions such as Japan and Taiwan is a positive factor. Japan will remove the daily entry cap and allow individual travel and visa-free short-term stays (up to 90 days) for travelers starting from the 11th. This is the first time in two years and six months since the COVID-19 outbreak.

Taiwan, Hong Kong, and Thailand are following suit. Taiwan has allowed visa-free entry and plans to end COVID-19 quarantine next month. Hong Kong has abolished hotel quarantine regulations, and Thailand has removed the requirement for COVID-19 vaccination and test certificates for entrants starting this month.

Among these, LCCs are aggressively increasing routes to Japan, which was a major route. Since the 1st, Jeju Air has increased the Incheon?Tokyo (Narita), Osaka, and Fukuoka routes to twice daily, and the Incheon?Tokyo route to three times daily. The Gimhae Airport?Tokyo (Narita), Osaka, and Fukuoka routes have also increased to seven times weekly from the same day. Furthermore, from the 30th, the Gimpo?Osaka and Incheon?Sapporo routes will resume operations seven times weekly. Other LCCs such as Air Busan, T'way Air, and Jin Air are also planning to increase or resume their Japan routes.

So far, air passenger demand has recovered slowly due to domestic quarantine policies. However, with the removal of pre-entry PCR tests and the increasing possibility of abolishing post-entry tests, demand is expected to rise significantly. As Asian countries are actively opening their borders, air travel demand is anticipated to increase substantially.

Professor Hwang Yong-sik of Sejong University said, "Before COVID-19, more than 70% of LCC routes were short-distance. Routes to Japan and Southeast Asia fall into this category, and with these skies opening, although not to pre-COVID-19 levels, they are expected to generate profits."

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