Conflicting Q1 Performance Forecasts in Aviation Industry: FSCs Soar While LCCs Struggle

Korean Air and Asiana Air Cargo Transport Booms
Jeju Air and T'way Air Passenger Sector Slumps

[Asia Economy Reporter Yoo Hyun-seok] The performance of domestic airlines in the first quarter of this year is expected to diverge. Major full-service carriers (FSC) such as Korean Air and Asiana Airlines are anticipated to post strong results due to robust cargo transportation, while low-cost carriers (LCC) are expected to struggle to improve earnings due to weak passenger segments.

According to FnGuide on the 28th, securities firms forecast Korean Air's first-quarter sales at 2.8715 trillion KRW and operating profit at 617.3 billion KRW. These figures represent increases of 60.20% and 507.68%, respectively, compared to the same period last year. Asiana Airlines is also expected to achieve first-quarter sales of 1.335 trillion KRW and an operating profit of 160 billion KRW. Sales increased by 57.59% year-on-year, and operating profit turned positive.

The improvement in FSCs' performance is attributed to the high level of cargo freight rates. The TAC Index, a global air cargo transportation index, shows that the average air cargo freight rate on the Hong Kong-North America route was $10.90 per kg in January, but decreased to $9.68 in February and $8.18 in March. However, these rates remain significantly higher than those in January ($6.43), February ($6.42), and March ($5.48) of last year.

On the other hand, LCC companies such as Jeju Air, T'way Air, and Jin Air are still expected to report poor performance. Jeju Air is forecasted to record sales of 100.3 billion KRW and an operating loss of 69.2 billion KRW. Although sales increased by 139.87% compared to the same period last year, losses persisted.

T'way Air and Jin Air are also expected to post sales of 57 billion KRW and 81.2 billion KRW, respectively, representing increases of 61.62% and 84.78% year-on-year. However, both are projected to continue operating losses, with losses of 50 billion KRW and 40.1 billion KRW, respectively.

Restrictions on air routes until the first quarter led to weak overseas travel demand, impacting performance. According to Incheon International Airport Corporation, international passenger traffic at Incheon Airport in the first quarter was 1,085,794, a 94% increase compared to the same period last year. However, this still falls short of the 17,777,255 passengers recorded in the first quarter of 2019.

Nevertheless, performance improvement is expected from the second half of the year. The Ministry of Land, Infrastructure and Transport plans to increase international scheduled flights starting next month, which is expected to boost overseas passenger demand.

In fact, provisional passenger traffic at Incheon Airport from the 1st to the 14th of this month was 270,378, a 229% increase compared to the same period last year. Park Soo-young, a researcher at Hanwha Securities, explained, "Recovery is expected to begin centered on 'demands that can no longer be postponed,' such as business trips and honeymoons," adding, "Considering vaccination rates by age, long-distance travel demand among the 20s and 30s generation is likely to emerge before family travel." He further noted, "Recovery in international passenger performance is expected to start with FSCs."

There are also claims that recovery will be slower without policy support. Currently, the government's pace of increasing international flights is slower than the recovery demand. An industry insider said, "The pace of increasing international flights is very slow, and there are still many factors hindering travel, such as PCR tests," adding, "Since policies to restore air travel demand are progressing too slowly, a rapid recovery of the aviation industry seems unlikely."

This content was produced with the assistance of AI translation services.