Airlines Breathe Easier... Earnings Improvement Delayed

by Ryu Hyunseok

Published 23 Jun.2022 11:30(KST)

Due to the rise in international oil prices, the fuel surcharge imposed on international flight tickets has once again reached a record high. According to the airline industry, Korean Air's international fuel surcharge for July has increased by 3 levels from June to level 22, resulting in charges ranging from 42,900 KRW to as much as 339,300 KRW depending on the distance. The domestic fuel surcharge will also increase from 17,600 KRW to 19,800 KRW starting this month. Consequently, the airfare paid by consumers is expected to rise further. The photo shows the runway and apron at Gimpo Airport on the 17th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Yoo Hyun-seok] As uncertainties surrounding the aviation industry gradually clear, airlines are accelerating their normalization efforts. However, with the continued presence of the three highs?high oil prices, high interest rates, and high exchange rates?it is expected to take time before a turnaround in performance is achieved.

According to the aviation industry on the 23rd, the government decided to resume the Gimpo~Haneda route yesterday and extend the employment retention subsidy.

The Gimpo~Haneda route is scheduled to resume on the 29th. Four Korea-Japan national airlines?Korean Air, Asiana Airlines, Japan Airlines, and All Nippon Airways?will begin operating eight flights per week. Since its launch in 2003, the Gimpo~Haneda route has established itself as a representative business route between Korea and Japan. The route’s peak season load factor approaches 98%. In particular, with Japan officially resuming foreign tourist entry and tourist visa issuance from the 10th, the number of tourists visiting Japan is expected to increase. The number of tourists between Korea and Japan was at the 4 million level before 2016. However, since 2017, the number of Korean tourists visiting Japan has surged, exceeding approximately 10 million in 2018.

The extension of the employment retention subsidy is also good news for the aviation industry. The Ministry of Employment and Labor decided to extend the employment retention subsidy period from the original 180 days per year to 270 days. As a result, Asiana Airlines, Jin Air, T’way Air, Air Busan, Air Seoul, and Jeju Air will be able to receive the employment retention subsidy until September.

The aviation industry has long argued for the extension of the employment retention subsidy. Although passenger demand is increasing, international routes are still slow to normalize, so if the subsidy is discontinued, the aviation industry would inevitably suffer damage.

However, it is expected to be challenging to improve performance. About 30% of airlines’ operating costs come from fuel expenses, and with high oil prices continuing, airlines are bound to incur losses in terms of operating profit. The U.S. interest rate hikes are also a burden. Airlines purchase aircraft through long-term leases, and these costs are paid in dollars. If the dollar continues to strengthen, it will inevitably be a burden on airlines.

An aviation industry official said, "With international routes resuming and the employment retention subsidy extended, the aviation industry can breathe a sigh of relief," but added, "Since the three highs phenomenon continues, a quick improvement in performance seems unlikely."