NH Investment & Securities said on the 29th that while an increase in operating expenses for Jeju Air is inevitable due to the strong dollar and a surge in fuel costs, the carrier is securing liquidity through supply cuts, expense reductions, and the sale of noncore assets, and is waiting for demand to recover in the second half. It maintained its investment opinion at Neutral (Hold) and lowered its target price by 11% to 5,500 won. Jeju Air closed at 4,955 won the previous day.
Recently, the burden of operating expenses at Jeju Air has expanded due to the strong dollar and rising jet fuel prices. In particular, as fuel surcharges have jumped, outbound travel demand from Korea has entered a short-term contraction phase.
In response, Jeju Air reduced 187 international flights, centered on less profitable Southeast Asia routes. This is equivalent to about a 4% cut in total international supply.
In June, it implemented short-term unpaid leave for volunteers and proceeded to bolster liquidity by selling three aging aircraft, selling its entire equity stake in the IT affiliate AKIS, and transferring its hotel business. The fleet modernization is also expected to proceed without a hitch.
In the first quarter, Jeju Air posted revenue of 516.2 billion won and operating profit of 69.0 billion won, delivering results that beat market expectations. Revenue rose 34.2% from a year earlier, and operating profit swung to a surplus.
Jung Yeon-seung, an analyst at NH Investment & Securities, said, "It was driven by higher international fares on robust first-quarter demand and the lagged impact of the fuel cost surge not being reflected," adding, "However, in the second quarter, an operating loss is inevitable due to short-term demand contraction and rising operating expenses."
However, as fuel surcharges fall and asset prices rise toward the second half, overseas travel demand could recover.
Jung said, "We expect a turnaround to profit from the fourth quarter and a recovery in operating profit next year on the full recovery of passenger demand," explaining, "Because low-cost carriers face limits in diversifying routes, securing cost competitiveness through fleet modernization is key to expanding valuation."