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Korea’s aviation industry faces severe turbulence

Air carriers cut more routes amid dwindling customers, activate crisis management system, suggest employees to take unpaid leave

(Yonhap)
(Yonhap)

South Korean air carriers have been facing a tough time following the nationwide boycott of trips to Japan last year and the oil price hike, only to face a triple whammy with the novel coronavirus outbreak, forcing them to suspend almost 90 percent of their lucrative China routes. 

According to industry sources, air carriers have been making all-out efforts to secure capital amid the dwindling number of passengers and continued business uncertainties led by external factors. 

The country’s full-service carrier Asiana Airlines has announced that it has decided to cut back flights to Southeast Asia, in addition to suspension and reduction of 24 out of 26 China routes. Its China routes accounted for 19 percent of its sales in the third quarter last year. 

Asiana Airlines’ Incheon-Taiwan route will be suspended from Feb. 26, while Incheon-Chiang Mai flights will be halted from March 3.

The air carrier said it will also reduce the number of flights bound for Hanoi, Bangkok, Singapore, Nha Trang and Saipan until mid-March. 

“Reduction or suspension of a number of flights is not only due to the declining passengers on such routes because of the epidemic outbreak, but also because the government’s travel advisory on restricting travel to such regions,” an Asiana official told The Korea Herald. 

The air carrier recorded an operating loss of 368.3 billion won ($311 million) last year, about 10-fold jump from the previous year. Its total sales came at 5.9 trillion won, down 4 percent on-year. 

While actual injection of 2.2 trillion-won capital from its new owner HDC Hyundai Development Company is yet to be carried out, the air carrier has been striving to save costs through various means, such as by receiving applications for unpaid leave from some 4,000 cabin crew members.

Korean Air has also recently suggested some 300 of 7,000 cabin crew members to spend their annual leave in March, due to the reduced number of services to China, Hong Kong and Japan. 

In December, the air carrier received applications for voluntary retirement from its employees who worked more than 15 years and are aged 50 and above -- the first in six years. 

The air carrier has been restructuring its business, such as by selling its money-losing hotel and leisure businesses and low-profit noncore operations. 

In the latest reshuffle conducted last year, the number of executives has reduced from 108 to 79.

According to its regulatory filing, Korean Air logged 290.9 billion won of operating profit last year, down 56.4 percent on-year. 

But the deteriorating business situation is taking a heavier toll on low-cost carriers. 

Market experts say budget carriers were hit harder because of their regional airport-based network, which mostly serve tourists rather than business travelers. A majority of LCCs are also highly dependent on short-distance routes such as to China and Japan considering their fleet models.

“In recent years, fierce competition among the country’s seven LCCs to attract customers through promotions with cheaper tickets has already damaged their profitability,” said professor Hwang Yong-shik of business from Sejong University.

Jeju Air, the country’s largest budget carrier by sales, said it has started its crisis business management system on Wednesday.

Jeju Air CEO Lee Seok-ju said in an email sent to employees that “amid dramatically shrinking consumer demand for flight travel, the aviation industry is facing a serious crisis, threatening air carriers to consider their survival.”

Last year, Jeju Air recorded 32.9 billion won of operating loss, turning to red for the first time in nine years. 

The budget carrier said its executives will return over 30 percent of their salary and will also expand receiving applications from employees for unpaid leave up to a month. It previously only accepted unpaid leave from flight attendants. The company reportedly cited the suspension of its all 12 China routes starting from March 1 for its decision.

T’way, the second-largest LCC, also announced it has activated its emergency business management system, receiving applications from employees for unpaid leave up to a month from March. Easter Jet and Air Seoul have also been accepting their employees’ unpaid leaves which last up to 3 months.

With Air Busan joining the list of LCCs suspending all China routes from Feb. 27, all routes operated by local LCCs to the country have been fully halted.

By Kim Da-sol (ddd@heraldcorp.com)
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