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Budget airlines fly high with huge first quarter

May 24,2018
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Budget airlines flew high in the first quarter, with combined operating profits soaring to more than double the figure inked in the same quarter last year.

Combined operating profits from Korea’s six low-cost carriers (LCC) - Jeju Air, Jin Air, T’way Air, Eastar Jet, Air Busan and Air Seoul - jumped by roughly 131 percent year-on-year to 186.1 billion won ($171.96 million) in the first quarter according to tentative performance reports from each company on Wednesday. Revenue grew by 34.2 percent to 1.18 trillion won.

LCCs typically release a tentative earnings report before releasing their fixed figure as they do not vary much.

The largest growth booster was the rapidly increasing demand for both international and domestic travel.

According to data from the Ministry of Land, Infrastructure and Transport released last month, the number of passengers that traveled through Korean airports reached 9.58 million in March, increasing by 12.6 percent year-on-year. While March is not traditionally a high-season for international travel, the number of overseas travelers increased by 17 percent to 7.1 million in the same month, showing traveling is becoming a year-round event.

The budget airlines’ efforts to diversify flight services to Japan and Southeast Asian destinations also paid off. After tension with China over the deployment of the U.S.-led terminal high-altitude area defense antimissile system stopped Chinese tourists from visiting Korea, LCCs specializing in short-haul overseas travel quickly sought out alternative destinations.

Korea’s largest LCC Jeju Air said its focus on Japan and Southeast Asian destinations, favored by Korean travelers, was a big driver for growth. Jin Air also credited its growth to flight service diversification.

Airlines are still in the process of expanding their travel routes. Eastar Jet will introduce a service to Da Nang, Vietnam, in June and Sapporo, Japan, in July. By the second half of the year, it will also start services to Kyushu and Nagoya in Japan.

T’way Air diversified its routes by creating flight services that depart from various regional airports in Korea including Daegu, Busan and Jeju.

“Airlines posted positive first quarter earnings despite soaring oil prices largely thanks to strong demand for overseas travel,” said Choi Go-woon, an analyst from Korea Investment & Securities. “Budget airlines, which had struggled in business in traditional low seasons, will see continuous performance growth now that people enjoy traveling abroad, especially to Japan and Southeast Asia, regardless of the season.”

During the same period, the combined operating profits of full service carriers Korean Air and Asiana Airlines grew 14.2 percent to 241.1 billion won. Asiana’s operating profit soared 144 percent to 64.3 billion won in the last quarter, the highest quarterly profit in three years, however Korean Air posted negative 4.3 percent growth and posted 176.8 billion won in operating profit.

Korea’s largest airline said one-time incentive payouts to employees, of about 53.4 billion won, and losses from unfavorable currency rates ate up its operating profit. Though the owner family scandal has tainted the airline’s brand image, it wasn’t until April that the “water rage” scandal involving Korean Air heiress Cho Hyun-min broke. Any effect from resultant boycotts will show in second quarter reports.

Revenue growth of the two full service carriers was limited to 8.3 percent. The total earnings of 4.62 trillion won, however, remains an unbeatable sum for the six budget airlines combined.

Full service carriers are trying to survive through a fierce battle in the aviation market by bolstering their long-haul flight services. According to a spokesperson from Asiana Airlines, it will make 60 percent of its services long-haul flights by 2022.


BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]