Budget Airlines on Edge of Collapse

  • By Kim Kang-han

    May 26, 2021 13:02

    Low-cost carriers in Korea are teetering on the edge of collapse as losses mount due to the coronavirus pandemic.

    Flag carriers Korean Air and Asiana Airlines are managing to make up for losses in passenger transport by hauling more cargo, but budget airlines rely heavily on flying people.

    "We've done everything we can including capital increases and loans while our assets have been depleted," a budget airline executive said. "If the situation doesn't get better soon, we will see bankruptcies."

    Top-ranked Jeju Air suffered an operating loss of W85.9 billion in the first quarter of this year, while Jin Air's operating loss totaled W60 billion, T'way Air's W44.8 billion and Air Busan's W47.2 billion (US$1=W1,123). That brings their combined losses to W237.9 billion.

    Jin Air's debt-to-equity ratio stands at a perilous 1,793.4 percent, while the ratio is 1,745.7 percent at Air Busan, 922.1 percent at T'way Air and 681.5 percent at Jeju Air. T'way Air undertook an W80-billion capital increase last month and was able to gain some breathing room, but it could sink into capital impairment if the situation continues.

    Low-cost carriers can only fly low-margin domestic routes since international flights were blocked. Last month, 2.98 million people took domestic flights, up 147.8 percent on-year, but intensive competition forced them to slash ticket prices.

    "We're struggling to attract domestic passengers and selling tickets to Jeju Island for the price of a cup of coffee, which ends up costing us," an airline staffer said. "As long as mid to long-haul flights remain shut, it will be impossible for us to achieve a turnaround."

    Carriers are even getting rid of airplanes to cut costs. Jeju Air reduced the number of its aircraft from 44 to 41, and Jin Air sold five airplanes to cut its fleet to 23. Air Busan sold four airplanes in the fourth quarter of last year and T'way Air one.

    Staff fear they may end up being furloughed without pay. "Until now, we were able to get 70 percent of our wages as the government covers some of them, but that will shrink if this situation continues," one staffer said.

    Carriers are asking the government to extend support from 180 days a year to 240 days. At present, around 9,000 people are employed by budget carriers here, and industry insiders say government support is the only solution at present to keep them afloat.

    Hurr Hee-young at Korea Aerospace University said, "The government pledged around W200 billion in support funding in March, but I don't think it has even started assessing the size of losses. This crisis did not stem from faulty management but was due to external causes, so the government will have to come up with special measures to protect the carriers and their staff."

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