LCCs struggle to overcome falling earnings with longer-haul routes
Passenger jets from Jeju Air and T'way Air prepare for departure at Incheon International Airport, July 13. Yonhap
Korea’s low-cost carriers (LCCs) are struggling to overcome a drastic earnings fall by launching mid- to long-haul routes in hopes of turning them into stable revenue streams.
The local LCC industry has long been trapped in a state of de facto price war, as most airlines focus on attracting passengers for only a few highly sought-after short routes to Japan and China.
The strategy, however, is doing little to enhance their profitability, as they end up selling tickets at lower prices to woo more customers away from their rivals, at the cost of falling revenues.
According to data from market tracker FnGuide, Jeju Air is forecast to report an operating loss of 39.5 billion won ($28.36 million) during the second quarter.
This is similar to other major LCCs. T’way Air is estimated to have suffered an operating loss of 47.5 billion won during the same period. The market tracker also expected Jin Air to report an operating loss of 4.8 billion won.
Even if the period is widely considered an off-season for airlines, their earnings fall raises concerns that they need to shift their business strategy and diversify revenue streams into untapped areas.
Aircrafts from Jin Air and Korean Air are seen at Incheon International Airport, July 13. Yonhap
Against this backdrop, major LCCs are moving to launch more routes to destinations with longer distances. Long-haul routes typically generate better returns for airlines.
Last week, Jeju Air decided to launch its new travel route to Singapore. The airline is now operating seven regular flights weekly between Incheon and Singapore.
Starting this month, T’way Air also initiated its new route connecting Incheon and Vancouver in Canada.
T’way has been one of the most aggressive LCCs in terms of its expansion into longer-haul routes. In 2022, the airline launched a route between Incheon and Sydney, Australia, and widened its flight operation in 2024 to major European cities including Paris, Rome, Barcelona and Frankfurt.
Falling travel demand to Japan bolsters the importance of LCCs’ expansion into more profitable long-haul routes.
According to data from the Ministry of Land, Infrastructure and Transport, the number of flights operated by Korean airlines from Korea to Japan fell 0.1 percent between April and June. The number of passengers for the same routes also decreased to 30.41 million, down 0.3 percent from a year earlier.
Officials from the industry said most LCCs feel a sense of crisis amid ever-toughening competition.
“LCCs cannot survive if they continue sticking to their old business models centered on short-haul routes,” an industry official said. “The planned launch of a converged LCC among Jin Air, Air Seoul and Air Busan also comes as a major threat to other influential LCCs such as Jeju Air and T’way Air.”
The official added, “They will no longer enjoy their old glory without taking aggressive steps to expand their revenue areas by launching more routes.”