Jeju Air Swings Back to Profit After One Year... "Still Time for Caution" [Click e-Stock]

Impact of Korean Air-Affiliated LCC Route Expansion Limits
Short-Term Momentum Still Lacking...Long-Term Approach Needed

Jeju Air has posted a rebound in earnings for the first time since the Muan Airport disaster, achieving a quarterly profit again after one year. However, analysts say this was driven more by external factors, such as competitors losing momentum, than by Jeju Air’s own structural improvements. They argue that a longer-term approach is needed.

On the 10th, Hana Securities did not present either an investment opinion or a target price for Jeju Air in light of these circumstances. The previous day’s closing price was 6,090 won.

In the fourth quarter of last year, Jeju Air reported revenue of 474.6 billion won and operating profit of 18.6 billion won, delivering a positive earnings surprise. Compared with the same period a year earlier, revenue increased by 5.4%, and the company swung back into the black. This is the first earnings rebound since the fourth quarter of 2024, when the Muan Airport disaster occurred.

Although international ASK (available seat kilometers: number of available seats x flight distance) and RPK (revenue passenger kilometers: number of revenue passengers x flight distance) fell by 9% and 10%, respectively, year-on-year, international passenger fares rose by 23%, driving an 11% increase in total international revenue. Given this trend, analysts assess that the likelihood of a profit in the first quarter of this year has also increased. It is also seen as positive that demand on Japanese routes, which account for more than 35% of revenue, remains strong, and that Jeju Air operates the largest number of routes to China among low-cost carriers (LCCs).

However, there is a consensus that this earnings rebound was not achieved solely by Jeju Air’s own efforts. Analysts say the structural weakness of competitors has also played a significant role. Jin Air, Air Busan, Air Seoul and other LCCs under Korean Air have been maintaining capacity on competition-restricted routes at more than 90% of 2019 levels in order to comply with corrective measures imposed by the Korea Fair Trade Commission following the merger of Korean Air and Asiana Airlines. As a result, more aircraft have been allocated relatively to domestic and Southeast Asian routes, while capacity on high-yield routes to Japan and China has been kept low, which in turn has allowed Jeju Air’s passenger fares to remain relatively high.

Even so, concerns remain about a lack of short-term momentum. Although earnings have rebounded, the recovery in ASK has been sluggish, and Jeju Air is therefore expected to struggle to surpass its 2024 revenue this year as well. As of the end of last year, the company still had an accumulated deficit of 70.9 billion won, and its debt ratio had risen to over 900%, which is also seen as a burden.

Ahn Dohyun, an analyst at Hana Securities, said, “Jeju Air is replacing its fleet composition with Boeing 737-8 aircraft through financial leases, and in the short term, unit transportation costs are expected to fall by about 14%, but there are also concerns about a short-term cash shortage,” adding, “With outbound travel growth stagnating, competition among domestic LCCs is expected to remain intense for the time being, so investors should still take a cautious approach to Jeju Air.”