Despite Increasing Passenger Demand, Profitability Declines... LCCs Contemplate Exit Strategies

On the 20th, passengers of Air Seoul's overseas non-stop flight moved to the boarding gate at Terminal 1 of Incheon International Airport.

Air Seoul's overseas non-stop flight departed from Incheon Airport, circled over Japanese airspace, and returned, achieving a 98% occupancy rate and receiving high interest from passengers.

Air Seoul plans to operate three more overseas non-stop flights in March on the 6th, 14th, and 21st. /Photo by Airport Photographers Group

[Asia Economy Reporter Dongwoo Lee] Despite the increase in domestic air passenger demand, it is pointed out that the profitability of low-cost carriers (LCCs) continues to deteriorate.

According to the Ministry of Land, Infrastructure and Transport's aviation portal on the 16th, domestic passengers last month (excluding Incheon Airport) reached 2,998,686, an increase of 148% compared to the same period last year. This figure is 9.2% higher than April 2019, before the spread of COVID-19.

This increase in passenger demand is due to the rise in domestic travel caused by restrictions on overseas travel, but the LCC industry explains that it is difficult to improve performance solely with revenue from low-priced domestic airfares.

Jeju Air held an event last month selling domestic one-way air tickets valid from June 1 to August 31 starting at a total fare of 9,900 KRW. During the same period, T'way Air also sold tickets on eight domestic routes starting at a total one-way fare of 10,000 KRW, and Jin Air conducted a similar low-price promotion.

The sale of ultra-low-cost air tickets by the LCC industry is because, unlike full-service carriers (FSCs), they lack exit strategies such as air cargo transport to offset reduced passenger demand.

Since more than 90% of LCCs' total revenue comes from international passengers, it is difficult to expect profitability from domestic passenger demand alone. Additionally, due to insufficient infrastructure for air cargo, there are limitations in quickly securing market competitiveness.

The industry is striving to generate revenue by expecting a partial resumption of international tourism in the second half of this year with the expansion of COVID-19 vaccinations, including non-landing sightseeing flights and selling home meal replacement products with in-flight meal concepts.

An LCC industry official said, "Ultra-low-cost air tickets show a facet of the industry's desperate crisis," adding, "In a situation where operations themselves are running at a loss, there is a desperate attempt to carry even one more passenger."