Korea's low-cost carriers (LCCs) have failed to shake off losses and cash shortages even after the pandemic, leaving their parent companies that acquired them continuing to pour money into a "bottomless jar." As massive funds keep flowing into LCCs that have piled up losses for years, concerns are growing that the parents' own finances could be shaken.
Electronics parts maker DAP will again participate in a paid-in capital increase for its subsidiary Aero K Holdings, following last month. After 10 billion won last month, it will inject an additional 50 billion won this time. Aero K Holdings plans to use the funds as operating capital for its subsidiary Aero K Airlines.
Dae Myung Chemical Group, whose main business is selling fashion and cosmetics, acquired LCC Aero K Airlines in 2022 through its affiliate DAP. It became the largest shareholder by injecting 30 billion won at the time, but three years later Aero K Airlines is in a state of complete capital impairment.
Apart from the funds DAP is providing through paid-in capital increases, it has also extended nearly 40 billion won in lending, but its financial condition has worsened compared with when it acquired the company.
Before acquiring Aero K, DAP posted nearly 10 billion won in annual operating profit, but it swung to a loss the year after buying Aero K Airlines. DAP's equity shrank from 110 billion won at the end of 2022 to 45.3 billion won at the end of 2024, and as of the end of September this year it turned negative.
DAP's share price also halved, falling from the 4,000–5,000 won range before the acquisition to below 2,000 won now.
Another KOSDAQ-listed company, WINIX, has also continued to inject funds after acquiring LCC Parata Airlines (formerly Fly Gangwon). WINIX last year bought equity in Fly Gangwon, which was under court receivership, for 20 billion won and has since supported operating funds.
The money WINIX has lent to Parata Airlines has reached 70 billion won so far, and last month it converted the existing lending into payment for new shares issued in a paid-in capital increase. It was to save the affiliate that had fallen into capital impairment, but a turnaround in results remains distant. WINIX's share price is also continuing to fall.
The LCC industry has deteriorated sharply this year. A bruising price war from oversupply combined with a surge in the won-dollar exchange rate has led all four listed carriers — Jeju Air, T'way Air, JIN AIR, and AIR BUSAN — to record their biggest losses since the pandemic.
The slump in the LCC industry is likely to persist for the time being. The parent companies' financial structures are also likely to worsen further. Park Su-yeong, an analyst at Hanwha Securities, said, "Demand for medium- and short-haul routes has fallen while supply has increased, intensifying competition," and noted, "With seasonal issues compounded by the exchange rate, weak earnings are likely to continue for the time being."