As the war between the United States and Iran drags on, pushing up exchange rates and oil prices, the aviation industry's struggles are mounting. In particular, low-cost carriers (LCCs), whose finances are weaker than those of major airlines such as Korean Air Lines and Asiana Airlines, have been successively cutting routes and are now weighing various expense-cutting measures.
According to the aviation industry on the 13th, AIR SEOUL, one of Korea's LCCs, recently introduced a "paperless" system that eliminates paper documents and conducts all work using tablet PCs and smartphones to reduce expense. It also decided to increase non-face-to-face video meetings and reports to cut expenditure arising when regional staff gather at headquarters for meetings and reporting.
AIR SEOUL's expense-cutting policy does not stop there. It notified all operations-related staff to also ramp up tankering to ease the burden of purchasing jet fuel. Tankering refers to a strategy of loading more fuel than needed for the flight at airports where fuel is cheaper, to minimize refueling at the destination airport where fuel is expensive.
Jin Air, an LCC under the Korean Air Lines umbrella like AIR SEOUL, also decided to indefinitely postpone payment of safety encouragement bonuses that it had planned to give employees as a morale booster. It is also considering several measures to improve its deteriorating finances, including holding a contest for expense-saving ideas.
An aviation industry official said, "Korean Air Lines aims to integrate three affiliates—Jin Air, AIR BUSAN, and AIR SEOUL—next year to create a 'mega LCC,'" adding, "Ahead of the integration, concerns over worsening results since the United States–Iran war seem to be increasing, and the affiliate LCCs appear to be under significant pressure to cut expense."
Another Korean LCC, Eastar Jet Co., has reportedly decided to introduce an annual leave designation and promotion system. This system allows a company to encourage or designate specific periods for employees to use annual leave and can be implemented legally with agreement from the employees' representative. In the aviation industry, some interpret Eastar Jet Co. as pushing to introduce the annual leave promotion system to reduce the allowances it pays employees.
In addition, T'way Air announced it would restrict budget usage across all departments, and Air Premia has reportedly decided to put this year's promotion reviews on hold for the time being.
In the LCC sector, there is also talk that some carriers are reviewing various measures to cut expense, including unpaid leave or voluntary retirement, in anticipation that high oil prices and a strong dollar could persist. Several LCCs, including T'way Air, Jin Air, AIR BUSAN, and AIR SEOUL, have already entered emergency management.
Airlines, including LCCs, are growing more alarmed because the war between the United States and Iran has pushed up oil prices and sharply increased jet fuel expense, while the weaker won and higher ticket prices have raised the likelihood of a steep drop in passenger demand.
Airlines sharply raised fuel surcharges applied to tickets starting this month. As a result, passenger demand, already declining as the off-season sets in, is contracting further. Next month, when the surge in oil prices caused by the United States–Iran war is fully reflected, fuel surcharges are likely to rise further, and airlines are expected to see an even larger drop in passenger demand.
As business conditions deteriorate, LCCs have also begun slimming down by successively reducing routes.
Jeju Air decided to cut a total of 110 flights on routes between Incheon and three destinations—Hanoi, Bangkok, and Singapore—from next month through June. This is the largest reduction among plans announced so far by Korean airlines.
Air Premia decided to suspend a total of 10 flights next month on routes from Incheon to San Francisco and New York (Newark) in the United States. It also announced plans to cancel 26 flights on the Incheon–Los Angeles (LA) route and six flights on the Incheon–Honolulu route from the 20th of this month to the 31st of next month.
In addition, Jin Air will reduce 45 round-trip flights across a total of eight routes this month, including routes between Incheon and Guam and Nha Trang, and between Busan and Cebu. AIR SEOUL will also reduce flights on the Incheon–Guam route this month. Aero K will cut four routes—Cheongju–Ibaraki, Narita, Clark, and Ulaanbaatar—from this month through June, and AIR BUSAN will reduce three routes—Busan–Da Nang, Cebu, and Guam—this month.
An aviation industry official said, "For major carriers such as Korean Air Lines and Asiana Airlines, cargo accounts for more than 25% of revenue, but for LCCs, cargo mostly accounts for less than 5%," adding, "If passenger demand plunges due to high oil prices and a strong dollar, LCCs inevitably will take a bigger hit." The official added, "If demand fails to recover in June, some LCCs will face severe management crises."