T'way Air has recently been promoting its "purchase the seat next to you" service on Instagram. If you buy one seat, on the day of departure you can check at the airport whether there are empty seats and then purchase up to three adjacent seats, including your own, if they can be consolidation. The price per additional seat is 20,000 won for short-haul routes such as Japan and China, 50,000 won for Oceania and Southeast Asia such as Guam and Saipan, and 150,000 won for Australia, Europe, and Canada. On the industry's sudden promotion of this service, which had been dormant since it was created in 2016, analysts said, "If it's going to fly empty, they'll sell it off even at clearance prices."
International passenger traffic set an all-time high 4th, but as price competition has intensified, profitability in the airline industry has deteriorated. It has reached the point where even one empty seat is regrettable, prompting "clearance sales" such as the adjacent seat purchase service. In the securities market, pessimistic forecasts say third-quarter results for low-cost carriers (LCCs) will be at a "shock" level.
According to the Ministry of Land, Infrastructure and Transport's Aviation Information Portal System on the 17th, international passenger traffic in Aug. was 8,525,963, up 6.7% from the same period a year earlier. It set a new monthly record for the first time in seven months since Jan. (8,240,295). Of that, the eight LCCs carried 2,977,189 international passengers, accounting for 34.9% of the total. That was an expansion of 0.4 percentage point (P) from a year earlier and the first increase this year.
The industry had regarded "an 80% load factor" as the break-even zone, but as cheap fares have increased, this rule has lately broken down. An industry official said, "You can no longer judge revenue based on the load factor alone," adding, "With the price per seat excessively low, it's not easy to make money even if you carry many customers." While each company's price per seat is not disclosed, nearly all LCCs have been holding monthly discount events recently. For departures after the Chuseok holiday, one-way tickets to Osaka, Japan, can be purchased in the 40,000 won range, and to Bangkok, Thailand, in the 70,000 won range.
Choi Goun, an analyst at Korea Investment & Securities, said, "In effect, price competition is what's lifting overall passenger numbers." Choi added, "In particular, this year's increase in international passengers is being supported not by Korea's outbound travelers but by inbound demand from foreigners coming into Korea. The profitability of LCCs, which focus on outbound passengers from Korea, will likely be worse than the headline passenger figures suggest."
According to Choi, through Jul. this year, the number of foreign arrivals increased 16% from a year earlier, but the number of departures rose only 3%. In fact, one LCC's load factor on a certain European route remains in the low 70% range. A representative of this LCC said, "With prices having fallen a lot, the load factor needs to be over 80%, and the 70% range is not a good performance."
The securities market expects LCCs' third-quarter results to be at a "shock" level. Looking at the operating profit estimates of the four listed LCCs, Jeju Air is expected to fall 63.8% year over year, AIR BUSAN 60%, and JIN AIR 31.8%. T'way Air is expected to swing to a profit of 8.5 billion won in the third quarter from a loss of 6 billion won in the third quarter of last year, but on an annual basis, its loss is projected to widen to 98.5 billion won this year from 12.3 billion won last year.
An industry official said, "It's true that total international passengers are increasing, but load factors are not high on long-haul routes with high profitability, and fares have dropped, making it hard to secure results," adding, "Although the third quarter is called the peak season, after the Aug. summer vacation period ended, we effectively entered the off-season, which has created major operational concerns."