Including Private Investments... The Survival Game of New LCCs

Securing Funds and Strengthening Competitiveness Are Vital

[Asia Economy Reporter Dongwoo Lee] Domestic emerging low-cost carriers (LCCs) are struggling to survive amid the adverse effects of COVID-19. While raising operating funds through rights offerings and equity sales, they are also focusing on strengthening competitiveness by launching new routes and acquiring aircraft.

According to the aviation industry on the 19th, Fly Gangwon plans to reduce its capital erosion ratio by expanding a capital reduction without compensation and a rights offering in September. The company initially planned a 67% capital reduction without compensation and a rights offering worth 20 billion KRW, but since this was insufficient to resolve capital erosion, the capital reduction ratio was increased to 80%, and the rights offering scale was expanded to 25 billion KRW.

Air Premia also received an Air Operator Certificate (AOC) from the Ministry of Land, Infrastructure and Transport on the 16th, two years after starting its business, and will launch its first flight on the ‘Gimpo-Jeju’ route next month. Unlike existing LCCs, it is notable for introducing medium- to large-sized aircraft. The company’s Boeing 787-9 (Dreamliner) operates not only spacious ‘Economy’ seats but also ‘Premium Economy’ seats with a seat pitch of 42 inches, aiming to attract customers.

Aero K, a new airline based at Cheongju International Airport, is also focusing on acquiring new customers. The company, positioning itself as an ultra-low-cost carrier, applies fares discounted by up to 28% compared to major airlines such as Korean Air and Asiana Airlines based on publicly announced fares, and up to 15% compared to existing LCCs.

The load factor on the Cheongju-Jeju route has steadily increased from the 10% range in April, the first month of operation, to 27.0% in May, and 38.8% last month. Although this is still poor compared to the existing LCC industry’s maintenance of the 80% range, it is steadily rising.

An aviation industry official explained, "New airlines do not meet the conditions for applying for the government’s Period Industry Stabilization Fund, making external capital injection difficult. They are preparing self-help measures to secure operating funds such as rights offerings while focusing on securing competitiveness."