This year, low-cost carriers (LCCs) are expected to record poor performance in the first quarter. Following the tragic incident involving Jeju Air at Muan International Airport at the end of last year and subsequent fires on AIR BUSAN aircraft and a structural defect discovered on AIR PREMIA aircraft, the decline in trust towards LCCs has resulted in fewer passengers. As passenger numbers decrease, LCCs are engaging in price competition.
According to the airline industry on the 28th, AIR BUSAN reported that its individual sales revenue for the first quarter is provisionally estimated to be 249.6 billion won, down 8.3% compared to the same period last year, and its operating profit is expected to decrease by 43.4% to 40.2 billion won. AIR BUSAN noted that a fire occurred on flight 391 heading to Hong Kong at Gimhae International Airport in January, affecting the disposal of an Airbus A321-231 aircraft.
Other LCCs are also expected to report poor performance. According to performance estimates compiled by financial information provider FnGuide, Jeju Air's operating profit for the first quarter is projected to plummet by 96.07% to 3.1 billion won compared to the same period last year. During the same period, T’way Air's operating profit is estimated to have decreased by 50.33% to 38.7 billion won, while JIN AIR's operating profit is estimated to have dropped by 33.20% to 65.8 billion won.
As travelers are reluctant to fly with LCCs due to a series of aviation accidents, airlines are competing by lowering fares. Previously, AIR BUSAN reported that its revenue per available seat kilometer (ASK) for the first quarter is 117 won, down 10% from 130 won in the first quarter of last year. ASK is an indicator of an airline's transport capacity, calculated by multiplying the number of seats available for transport by the operating distance. A decrease in revenue per ASK indicates either lower fares or fewer passengers willing to pay high fares.
Similar trends are expected among other airlines as well. Koh Woo-n, a researcher at Korea Investment & Securities, noted, “Jeju Air's significant price reduction on tickets has resulted in performance burdens for the LCC industry,” adding, “According to our estimates, first-quarter international fares have dropped nearly 20% for Jeju Air, over 10% for T’way Air, and about 10% for AIR BUSAN and JIN AIR.”
There are a total of 9 domestic LCC operators that are increasing their supply by introducing new aircraft every year. Given the intense competition, when one airline lowers its fares, others have no choice but to follow suit. An industry insider stated, “Air ticket prices are adjusted differently depending on the timing, and when market conditions are unfavorable, they are adjusted by lowering prices in line with other airlines.”
Following the Jeju Air tragedy at the end of last year, there has been a notable reluctance among travelers to fly with LCCs. According to the Ministry of Land, Infrastructure and Transport, the total number of LCC passengers in the first quarter of this year is reported to be 16,146,113, a decrease of 8% compared to the same period last year. By airline, Jeju Air saw the largest decline at 22.6%, followed by AIR BUSAN (-18.3%) and JIN AIR (-3.1%). In contrast, the total number of passengers for full-service carriers (FSCs) Korean Air and Asiana Airlines increased by 4% to 12,996,266 in the first quarter.
To boost customer demand, airlines are focusing on enhancing safety by expanding maintenance staff and introducing new aircraft. This year, Jeju Air, T’way Air, and JIN AIR have begun recruiting new and experienced maintenance personnel. Jeju Air is set to introduce one new aircraft in the first half of this year, and T’way Air plans to bring in five aircraft by 2026.