Airlines Set to Benefit in the Long Term Despite Fuel Cost Surge: "It's Actually Good" [Weekend Money]

Soaring Fuel Costs Expected to Worsen Finances of Small LCCs
"Korean Air, Jeju Air, Jin Air, and Air Busan to Benefit"

With the sharp rise in fuel costs, domestic small- and medium-sized low-cost carriers (LCCs) are expected to see deteriorating performance and undergo restructuring, while the shifting competitive landscape is projected to benefit Korean Air and major LCCs.

Korean Air. Yonhap News

On the 16th, Bae Seho, a researcher at iM Securities, stated, "The realization of restructuring among small- and medium-sized LCCs, as well as the planned merger of the three Hanjin Group LCCs (Jin Air, Air Busan, and Air Seoul) in early 2027, are factors that could ease competition in the airline industry." He added, "Korean Air, Jeju Air, Jin Air, and Air Busan are expected to benefit."

Bae also commented, "In the case of Korean Air, as the top player amid industry restructuring, it is expected to enjoy the greatest profit upside." He continued, "Jeju Air, Jin Air, and Air Busan are also expected to see their stock prices rise, as they have sufficient liquidity despite surging fuel costs, and a full-fledged industry turnaround (return to profitability) is anticipated in 2027."

Jet fuel prices soared from $89 to $200 per barrel between February and April, but airlines were unable to pass the increased fuel costs onto fares. This is because the fuel surcharge is applied based on the average price of Singapore jet fuel from the 15th of the month before last to the 16th of last month. From June, however, airlines will be able to reflect the higher fuel costs in ticket prices.

To mitigate losses, airlines reduced low-yield routes in March and April. High-yield Japan routes increased by 17% year-on-year during this period, while low-yield Southeast Asia routes decreased by 8%. Notably, Korean Air, T’way Air, Jeju Air, and Jin Air significantly reduced their Southeast Asia routes.

Nevertheless, an operating loss in the second quarter due to rising fuel costs appears inevitable. The excess fuel costs that could not be reflected in second quarter fares are estimated at approximately 550 billion won for Korean Air, 210 billion won for Asiana Airlines, 60 billion won for Jeju Air, and 46 billion won for Jin Air.

iM Securities expects that the additional fuel costs not passed on to fares will further weaken the financial positions of small- and medium-sized LCCs, and suggested that the competitive environment will shift in favor of more stable major carriers. As of the end of last year, Air Premia was already in a state of complete capital impairment, and from the second quarter of this year, there is a possibility that Eastar Jet and Aero K could also fall into complete capital impairment.

Bae noted, "Given the size of their fleets, the additional fuel costs for these carriers are expected to amount to between 20 and 30 billion won, and considering the ongoing operating losses, most of their cash equivalents could be depleted by the end of the second quarter, making additional capital raising potentially necessary."

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