Jeju Air Preparing for a Rebound While Focusing on Restructuring [Click e-Stock]

Industry-wide Downturn for LCCs
Focusing on Restructuring to Strengthen Fundamentals

This year, Jeju Air is expected to record a deficit of 160 billion won. The company appears to be focusing on restructuring in the aftermath of the Muan Airport accident.

On the 23rd, Korea Investment & Securities maintained a 'neutral' investment opinion on Jeju Air in light of these circumstances. No target price was suggested.

Jeju Air introduced six new aircraft this year, but as it focused on restructuring following the Muan Airport accident, its available seat kilometers (ASK) are expected to decrease by 8% compared to the previous year. In addition, a slowdown in domestic consumption and rumors about a major earthquake in Japan are expected to further drive down fares by 10%.

However, this downturn is not unique to Jeju Air, but is seen as an issue affecting the entire low-cost carrier (LCC) industry. In particular, LCCs that aggressively expanded supply have seen their profits deteriorate even further. It is assessed that this is a difficult period for LCCs to pursue external expansion strategies.

Jeju Air continues to hold the top spot among LCCs in terms of international passenger volume. Since August, the decline has come to a halt, and the company has recovered to last year's level. Choi Gowoon, a researcher at Korea Investment & Securities, explained, "Marketing efforts have also increased, but the fact that price competitiveness still appeals to consumers means that trust in safety and the brand remains intact. This year, the on-time flight rate improved significantly to 77%, up from 71% last year, demonstrating the results of focusing on internal improvements rather than external expansion."

Demand for short-haul overseas travel has been recovering since the third quarter. Sentiment toward travel to Japan rebounded around the Chuseok holiday. Unlike in the past, Japan's peak travel season has shifted to winter, and the lowest number of visitors for two consecutive years was recorded in August. The price of airline tickets to Tokyo and Osaka in December is estimated to have recovered to the 300,000 won range. Southeast Asian routes remain sluggish, so it will take more time for performance to fully normalize, but Jeju Air is expected to return to profitability in the first quarter of next year for the first time in six quarters.

Korea Investment & Securities believes that if Jeju Air succeeds in selling the three aircraft it is currently working to dispose of, it will have effectively overcome its most challenging period. Researcher Choi stated, "The gap between LCCs will widen further during the current downturn. The industry's restructuring is expected to accelerate from next year, and in this process, Jeju Air's role in keeping Hanjin Group's monopoly risk in check will be reassessed."