It is anticipated that Jeju Air will suffer sales losses due to flight cancellations and reductions in flight schedules following the passenger aircraft accident at Muan Airport. Experts predict that, due to the characteristics of low-cost carriers (LCC), it will take longer to recover credibility compared to full-service carriers (FSC).
According to the airline industry on the 12th, Jeju Air decided to allow free cancellations of tickets, leading to a surge in refund requests. Jeju Air announced that it would waive cancellation fees for flights until March 29, the last day of its winter flight schedule. The airline will also reduce approximately 1,878 domestic and international flights by the end of March, cutting 1,040 international flights and 838 domestic flights.
Since the day of the accident, 29th of last month, until 1 p.m. the following day, over 68,000 tickets were canceled by Jeju Air. According to the Ministry of Land, Infrastructure and Transport's aviation portal, the number of passengers who departed using Jeju Air during the six days from the 29th of last month to the 3rd of this month (49,839) decreased by more than 15% compared to the same period last year.
While the company has not disclosed the number of cancellations since then, ticket cancellations are reportedly continuing. Travel agencies such as Hanatour and Interpark Tour have also waived cancellation and change fees for travel packages that include Jeju Air routes. Hanatour fully waived cancellation fees for airline tickets, hotels, and local events for Jeju Air products scheduled to depart by the 10th.
Some analysts forecast that if deposits are withdrawn due to canceled bookings, it could lead to reduced sales and potentially liquidity issues. The deposits of the airline largely consist of the ticket prices paid by customers. Until used, the deposits are classified as contract liabilities on the financial statements, and after usage, they convert to sales.
As of the end of the third quarter last year, Jeju Air's deposits were 260.6 billion won, the highest among domestic LCCs. Among listed companies, T'way Air's deposits ranked second at 184.3 billion won, followed by Jin Air (175.3 billion won) and AIR BUSAN (122 billion won). Jeju Air stated that it holds around 140 billion won in cash, implying that there should be no liquidity concerns.
In the airline industry, it is believed that Jeju Air, as an LCC, will need more time to stabilize compared to full-service airlines. Currently, there are nine domestic LCC operators. LCCs, which mainly operate short-haul routes, provide consumers with more choices than full-service carriers. Since LCCs do not operate mileage programs, customer loyalty is also relatively lower compared to full-service airlines. This results in a lower incentive for customers to remain loyal.
Asiana Airlines, a major carrier, also experienced a decline in revenue due to a fatal accident during landing at San Francisco International Airport in July 2013. Three people died and around 180 were injured in that accident. As a result of the incident, Asiana Airlines reported revenues of 1.5192 trillion won in the third quarter of that year (July to September), a decrease of 3% compared to the same period the previous year, while the amount of deposits fell by 17.8% to 248 billion won. The quarterly revenue of Asiana Airlines continued to decline until the first quarter of 2014, returning to a year-on-year increase (2.7%) in the second quarter of 2014.
One airline industry insider noted, 'As Jeju Air is an LCC, there are weaknesses in its relations with travel agencies and its credibility compared to FSCs.'