Although the number of passengers who used domestic airlines through May this year increased from a year earlier, airlines' first-half revenue is expected to decline. That is because jet fuel prices have surged due to the war between the United States and Iran, and travel demand has been gradually decreasing recently as fuel surcharges rise.
According to aviation statistics from the Ministry of Land, Infrastructure and Transport on the 29th, the number of passengers who used Korean Air Lines and Asiana Airlines through May this year totaled 17,811,630, up 2.2% from the same period last year. The number of passengers in April–May, when fuel surcharges jumped sharply as international oil prices spiked due to the war between the United States and Iran, also increased 2.6% from a year earlier.
The rise in passenger numbers was larger for low-cost carriers (LCCs). The nine domestic LCCs are Jeju Air, Jin Air, AIR BUSAN, Eastar Jet Co., Trinity Airways, AIR SEOUL, Air Premia, Aero K, and Parata Airlines. The cumulative number of passengers carried by the nine LCCs through May this year was 23,915,273, up 17% year over year. LCC passenger numbers in April–May were 9,225,606, up 11.4%.
Even so, the financial market expects airlines to post negative growth in the second quarter this year. According to FnGuide, Korean Air Lines is estimated to post an operating loss of 184.3 billion won in the second quarter, and Asiana Airlines is projected to record a 349 billion won operating loss. Trinity Airways is expected to log a 120 billion won deficit, Jeju Air 54 billion won, and Jin Air 33.4 billion won.
The outlook for worsening results despite higher passenger numbers stems from the sharp rise in oil prices. Fuel accounts for about 26%–30% of each airline's expense structure. As international oil prices rose due to the United States–Iran war, the price of jet fuel that airlines purchase also soared.
A representative of a major airline said, "Because the process from crude refining to supply is complex, even if international oil prices fall, there will be a time lag before the burden of purchasing jet fuel eases."
Another factor expected to worsen results is that bookings have declined since May due to higher fuel surcharges. A fuel surcharge is an expense added to the ticket price depending on fluctuations in fuel costs. As oil prices surged, the fuel surcharge announced in April and applied in May rose to level 33, the highest. It fell to level 27 in June and level 19 in July recently, but it remains high compared with last year. In May last year the fuel surcharge was level 5, and in June and July it was level 4.
Because current passenger counts reflect past bookings, the airline industry expects the number of users to decline starting in May. In fact, some airlines, including Asiana Airlines, Jin Air, and Trinity Airways, saw their May passenger numbers fall from a year earlier. A representative at an LCC said, "Recent booking trends are weaker than before," adding, "Bookings fell as we reduced frequencies on routes due to rising oil prices."
Even in this environment, LCCs are continuing a low-price sales battle. Despite higher fuel costs, they are lowering fares to maintain seat occupancy amid weakening demand. LCCs have increased passenger numbers by introducing new aircraft and adding routes focused on short-haul flights, but intensifying price competition among airlines is hurting profitability and revenue.
The airline industry plans to secure as much travel demand as possible for the summer peak season of July–August to improve results. Korean Air Lines will increase frequencies on the Incheon–Sapporo route from July 1 to Aug. 31. Jeju Air will raise the Incheon–Nagoya and Incheon–Matsuyama routes from 14 round trips per week each to 21. Jin Air has expanded its China routes, and Eastar Jet Co. will offer discounts starting next month on tickets for travel after late October.
An airline industry representative said, "Demand on medium- and long-haul routes has been showing a gradual recovery this month," adding, "If jet fuel prices fall and peak-season demand matches last year's level, results will improve in the second half."