Carriers crippled by Japan boycott, Hong Kong protest, China's refusal to grant new routes
By Nam Hyun-woo
Korean Air, Asiana Airlines and low-cost carriers (LCCs) are in a quandary as events associated with Japan, Hong Kong and China are hurting their already-shaky bottom lines, according to industry analysts Friday.
Domestic carriers have cut or stopped flights to Japan as Koreans refrain from traveling there amid the deepening trade feud between Seoul and Tokyo. Adding more concerns is that customer sentiment on traveling to Hong Kong is weakening due to prolonged protests there, and China has stopped granting new routes linking Korea.
The analysts said the outlook was grim for domestic airlines, which could not find momentum for recovery in the third quarter.
As of Friday, eight Korean carriers had reduced or stopped flights on 61 routes to Japanese cities since Tokyo restricted exports to Korea.
Of them, LCC T'way Air halted 14 of its 23 routes to Japan. T'way had the most routes to Japan, but decided to suspend them because of reduced demand.
Full-service carriers Asiana Airlines and Korean Air also cut flights on four and five routes, respectively.
Although carriers' flight adjustments will mostly take effect next month, the impact of domestic customers' boycott of travel to Japan is emerging. According to the Ministry of Land, Infrastructure and Transport, the load factor on flights linking Korea and Japan in the first week of this month was 71.5 percent, down from 84.5 percent from a year earlier.
The prolonged protests in Hong Kong are also a concern.
Hong Kong International Airport was forced to cancel passenger flights on Monday after thousands of demonstrators crowded into the main terminal. Flights have resumed, but the closure has spread jitters about travel to the popular destination.
According to the ministry, 318,662 passengers traveled to Hong Kong from June to July this year, down 51.6 percent from 658,731 during the same period a year earlier.
To cope with the decline, carriers had planned to increase flights to China, but Beijing has barred foreign-based carriers from launching routes to the country or expanding operations there for two months.
This triple whammy is expected to deal an additional blow to Korean airlines' earnings which were already hurting in the second quarter.
Korean Air posted an operating loss of 101.5 billion won in the second quarter. Asiana Airlines logged a 124.1 billion won operating loss.
LCCs also turned to loss. Jeju Air, Jin Air and T'way Air respectively posted operating losses of 27.4 billion won, 26.6 billion won and 26.5 billion won.
"Along with weakening consumer sentiment due to the economic slowdown, the weakened value of the won played a crucial role in airlines' losses because it increased the cost of jet fuel and aircraft leasing fees, which are paid with dollars," a domestic airline official said.
"For LCCs, the slump in Japan-bound routes will be critical as it takes a long time to find alternative routes. The third quarter is a peak time for carriers, but the outlook is not that favorable."
Analysts are also casting a cloudy outlook on any recovery.
"As unexpected negative events continue to take place, uncertainties weigh heavily on the entire airline industry," Hanwha Investment & Securities analyst Kim Yu-hyuk said. "Carriers are coping with that by reducing flights with weak performances and expanding routes to Southeast Asia, but it will take time for those measures to take effect."
Korea Investment & Securities analyst Choi Go-woon said, "Shrinking consumer sentiment on travel is increasing the uncertainties a lot faster than natural disasters."
By Nam Hyun-woo
 |
| Korean Air CEO Cho Won-tae |
Domestic carriers have cut or stopped flights to Japan as Koreans refrain from traveling there amid the deepening trade feud between Seoul and Tokyo. Adding more concerns is that customer sentiment on traveling to Hong Kong is weakening due to prolonged protests there, and China has stopped granting new routes linking Korea.
The analysts said the outlook was grim for domestic airlines, which could not find momentum for recovery in the third quarter.
As of Friday, eight Korean carriers had reduced or stopped flights on 61 routes to Japanese cities since Tokyo restricted exports to Korea.
Of them, LCC T'way Air halted 14 of its 23 routes to Japan. T'way had the most routes to Japan, but decided to suspend them because of reduced demand.
 |
| Asiana Airlines CEO Han Chang-soo |
Although carriers' flight adjustments will mostly take effect next month, the impact of domestic customers' boycott of travel to Japan is emerging. According to the Ministry of Land, Infrastructure and Transport, the load factor on flights linking Korea and Japan in the first week of this month was 71.5 percent, down from 84.5 percent from a year earlier.
The prolonged protests in Hong Kong are also a concern.
Hong Kong International Airport was forced to cancel passenger flights on Monday after thousands of demonstrators crowded into the main terminal. Flights have resumed, but the closure has spread jitters about travel to the popular destination.
According to the ministry, 318,662 passengers traveled to Hong Kong from June to July this year, down 51.6 percent from 658,731 during the same period a year earlier.
To cope with the decline, carriers had planned to increase flights to China, but Beijing has barred foreign-based carriers from launching routes to the country or expanding operations there for two months.
This triple whammy is expected to deal an additional blow to Korean airlines' earnings which were already hurting in the second quarter.
Korean Air posted an operating loss of 101.5 billion won in the second quarter. Asiana Airlines logged a 124.1 billion won operating loss.
 |
| Jeju Air CEO Lee Seok-joo |
"Along with weakening consumer sentiment due to the economic slowdown, the weakened value of the won played a crucial role in airlines' losses because it increased the cost of jet fuel and aircraft leasing fees, which are paid with dollars," a domestic airline official said.
"For LCCs, the slump in Japan-bound routes will be critical as it takes a long time to find alternative routes. The third quarter is a peak time for carriers, but the outlook is not that favorable."
Analysts are also casting a cloudy outlook on any recovery.
"As unexpected negative events continue to take place, uncertainties weigh heavily on the entire airline industry," Hanwha Investment & Securities analyst Kim Yu-hyuk said. "Carriers are coping with that by reducing flights with weak performances and expanding routes to Southeast Asia, but it will take time for those measures to take effect."
Korea Investment & Securities analyst Choi Go-woon said, "Shrinking consumer sentiment on travel is increasing the uncertainties a lot faster than natural disasters."
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