High fuel costs force South Korean LCCs to slash medium-haul flights

The escalating cost of jet fuel, exacerbated by the prolonged conflict between the US, Israel, and Iran, is pushing South Korea's low-cost carriers (LCCs) into a severe financial crisis. Hankyoreh reports that these airlines, already operating on thinner margins than full-service carriers, are being forced to drastically cut operations, particularly on medium-haul routes. This situation highlights the vulnerability of the LCC business model to global energy price fluctuations.

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The low-cost carriers' main routes, such as those to Japan and Southeast Asia, are in a state of oversupply, limiting their ability to raise prices.

Major LCCs, including Jeju Air, Air Busan, Jin Air, and others, have collectively announced the cancellation of nearly 900 round-trip flights. Jeju Air, for instance, has reduced its international flight schedule by 4% for May and June, significantly cutting frequencies to popular destinations like Phu Quoc, Da Nang, Bangkok, and Singapore. Air Busan and Jin Air are also implementing substantial cuts and extending flight suspensions. The focus on medium-haul routes is strategic; these journeys often necessitate costly mid-flight refueling, making them particularly susceptible to rising fuel costs.

Beyond flight reductions, LCCs are resorting to stringent cost-saving measures. Jeju Air has introduced voluntary unpaid leave for cabin crew, and other airlines like T'way Air and Aero K are following suit. Jin Air has postponed employee bonuses. These actions underscore the precarious financial state of the LCC sector, as airlines grapple with the dual pressures of increased operational costs and potentially weakened passenger demand due to higher airfares.

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The short-term decline in profitability is inevitable due to the increased burden of fuel costs.

Industry analysts quoted by Hankyoreh suggest that the current high-fuel price environment disproportionately impacts LCCs, which have limited pricing power on competitive routes like those to Southeast Asia and Japan. While the situation is dire, some analysts believe that once the global macroeconomic environment stabilizes, the LCCs, having maintained stable unit costs prior to the crisis, could recover relatively quickly. However, the immediate future points towards a period of consolidation and operational austerity within the South Korean LCC market.

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However, as the supply capacity and unit costs of domestic airlines were stable before the war, rapid normalization is possible if the macroeconomic burden is resolved.