Mass Layoffs Start at Low-Cost Airlines

  • By Kim Kang-han

    October 14, 2020 12:17

    The troubles of Korea's budget airlines are deepening as the coronavirus epidemic has nearly depleted their cash reserves and government support for furloughs has stopped.

    Jeju Air, the country's largest budget carrier, said Tuesday that it will seek assistance from a special government fund designed to help businesses hit by the epidemic, the first airline to do so. The fund was established in May but has drawn little interest from companies because of strict application conditions.

    "We're suffering from a short-term liquidity shortage after most of our international flights stopped due to the pandemic," a Jeju Air staffer said. "We want to tap into the fund to resolve our short-term cash crunch and strive to pay back the money as soon as possible."

    The budget carrier secured W150.6 billion from a capital increase in August, but that was apparently not enough to cover the W30-40 billion it requires each month to stay afloat (US$1=W1,146).

    Jeju Air suffered an operating loss of W65.7 billion in the first quarter of this year and of W84.7 billion in the second quarter. Third-quarter operating loss is expected at around W67 billion. 

    Eastar Jet, which Jeju Air gave up trying to acquire in July, is laying off 605 staff on Wednesday, the first instance of a mass layoff in Korea's airline industry. It is desperate to trim down running costs while it searches for a new buyer. The layoffs will eventually reduce staff numbers from 1,600 to just 590.

    "We currently own six passenger planes so we need to find a new buyer after adjusting the number of our workers to match the number of aircraft," an Eastar Jet staffer said. But the budget carrier's labor union is protesting against the layoffs and said workers have not been paid for the last eight months and are owed a cumulative W25 billion.

    All low-cost carriers here have sent workers on furlough, but the government will stop providing aid money at the end of this month, so from now on they will go unpaid. Jeju Air, Jin Air, T'way Air and Air Busan said Tuesday that they will send staff on unpaid leave in November and December to save money.

    An Air Seoul staffer said, "Our management has not made any announcements, but there is a strong chance that we will also be sent on unpaid leave."

    The carriers can apply for government aid again in January next year. Budget airlines are doing whatever they can to stay afloat. Starting next month, T'way Air will start carrying cargo aboard passenger flights to Ho Chi Minh City in Vietnam. Jin Air also decided to convert its B777-200ER aircraft to haul cargo.

    Others are offering flights that go nowhere. Jeju Air last week started "sightseeing" flights from Incheon that circle above Gwangju, Yeosu, Busan and Pohang, while Air Busan is launching similar flights late this month that will take passengers above Seoul and Jeju skies.

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