Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Airlines suspend unprofitable flights on oil price hikes
Passenger jets are parked on the apron of Incheon International Airport, March 4. Yonhap
By Lee Min-hyung
Budget carriers increase fuel surcharges amid global oil price hikes
Major airlines in Korea are scaling back international routes, as surging oil prices and the strengthening dollar erode their profitability at a rapid pace.
The move is evident particularly from low-cost carriers (LCCs) — most of which have to cushion additional earnings falls from mounting external uncertainties.
Most LCCs reported operating losses last year on the prolonged depreciation of the Korean won against the dollar. Their earnings outlook this year also remains dismal on the unexpected fuel cost hike amid the abrupt outbreak of armed conflict in the Middle East.
They are preemptively reducing their flight operations on concerns over weakening passenger demand due to the rising ticket prices.
Jin Air will suspend a total of 45 round-trip flights on eight routes from April 4 to April 30. The affected routes include Incheon-Guam, Incheon-Nha Trang and Busan-Cebu.
Air Premia, which focuses on mid- to long-haul routes, will also cut back operations for a similar reason. Starting from April, the airline will reduce 26 flights on its Incheon-Los Angeles route and six on its Incheon-Honolulu route.
Other LCCs are also jumping on the bandwagon. Aero K will halt operations on several international routes, such as Cheongju-Ibaraki and Cheongju-Narita, in June, and suspend its flight operation for routes such as Incheon-Osaka and Incheon-Ibaraki, for three months from August.
Jin Air's B737-800 aircraft / Courtesy of Jin Air
Starting this month, Air Busan will suspend operations for routes from Busan to Da Nang, Cebu and Guam. Eastar Jet is also set to cut around 50 flights on its Incheon-Phu Quoc route in May.
Industry officials said LCCs are under pressure to suspend unprofitable routes amid possible fall in travel demand.
“As the Middle East tension shows no immediate signs of abating, LCCs are particularly exposed to mounting risks on the soaring international oil prices, so they have no other choices but to reduce certain routes,” an industry official said.
According to data from Investing.com, the price for West Texas Intermediate (WTI) crude oil was traded at around $65 (98,000 won) on Feb. 25, but has since surged to over $99 as of Friday.
The won-dollar exchange rate, which was at 1,427.8 won per dollar on Feb. 25, weakened Tuesday to 1,530 won per dollar on the escalating external geopolitical uncertainty.
Both factors increase the cost burden to airlines, as they have to pay for fuel in dollars.
In response, LCCs are increasing their fuel surcharges to cover fluctuating fuel costs. Jin Air will increase the surcharges to $25 in April from $8 the previous month for short-haul routes less than 600 miles. Eastar Jet will also drastically raise its surcharge to $29 from $9 during the same period.