[In the Stocks] Jeju Air's 'Soaring Oil Prices' Following 'COVID-19'

[Asia Economy Reporter Hwang Junho] Following the phased return to normal life after COVID-19 (With Corona), airline stocks are emerging as reopening beneficiaries. The reopening of air routes has heightened expectations for improved performance. In particular, there is growing anticipation for low-cost carriers (LCCs) that were once on the brink of extinction, with significant interest focused on Jeju Air, the eldest among LCCs. However, the securities industry still predominantly holds the view that careful consideration is necessary.

According to Ebest Securities on the 8th, as of the closing price on the 5th, Jeju Air’s stock price has fallen 22% from this year’s peak. Compared to other LCCs like T’way Holdings (-30.6%) or full-service carriers (FSC) like Asiana Airlines (-24.7%), this is a relatively decent level. However, it still falls short of Korean Air (-12.8%), which has consistently defended its performance through cargo transport. Although mentioned as a reopening beneficiary, the actual stock price has not met expectations. As of 9:30 a.m. on the same day, Jeju Air was trading at 22,150 KRW, up 4.98% from the previous day.

Recently, the increase in vaccination rates and the implementation of With Corona have positively influenced Jeju Air’s stock price. According to the Ministry of Land, Infrastructure and Transport’s aviation portal statistics, the number of international passengers departing from domestic airports last month was 309,000, slightly up from 291,000 in September. Jeju Air started regular flights on the Incheon-Saipan route in July and began operating charter flights to Chiang Mai, Thailand this month. Additionally, from the 25th of this month, it will operate irregular flights for tourism purposes on the Incheon-Guam route.

The key issue is how much actual passenger demand will gather. This means how many seats sold for cash on the aircraft will be filled. For LCCs like Jeju Air, which operate only passenger flights, a genuine recovery in passenger demand would provide significant momentum for securing performance.

Ahead of the Chuseok holiday, the spread of COVID-19 is accelerating mainly in Seoul and the metropolitan area. On the 16th, the domestic terminal of Gimpo Airport in Gangseo-gu, Seoul, was crowded with passengers. Photo by Mun Honam munonam@

However, the securities industry is raising cautious views. Yang Ji-hwan, a researcher at Daishin Securities, analyzed, "Despite With Corona, airline stocks continue to show a weak trend," adding, "This is because expectations have already been priced into the stock, and the recent sharp rise in oil prices is also a cause of the weakness in airline stocks."

When jet fuel prices rise, costs increase accordingly. The Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC oil-producing countries including Russia, collectively known as OPEC+, recently decided to maintain their existing agreement to increase production by 400,000 barrels per day each month through December, despite the United States’ request for increased output, raising the possibility of further oil price increases.

Choi Go-woon, a researcher at Korea Investment & Securities, forecasted, "It is estimated that the operating losses of LCCs expanded slightly in the third quarter," adding, "The opportunity for a rebound depends on the point when overseas travel reservation demand begins to increase significantly, which is expected to become prominent as early as the end of the year."