China routes emerge as key revenue source for struggling Korean LCCs
A Trinity Airways passenger plane taxis at Gimpo International Airport in Seoul, Sept. 10. Yonhap
Budget carriers turn to China to reduce reliance on routes to Japan, Southeast Asia
China is emerging as a critical earnings lifeline for Korea’s struggling low-cost carriers (LCCs), offering them access to fast-growing passenger demand and lucrative business traffic as growth in other short-haul markets loses steam.
Some 2.13 million passengers traveled between Korea and China in August, surpassing the previous monthly record of about 2.07 million set in August 2016, before the fallout from the deployment of a U.S. missile defense system in Korea severely disrupted bilateral tourism.
The August figure was up 27.5 percent from a year earlier and 9.7 percent from July, according to data from the Ministry of Land, Infrastructure and Transport.
The rebound comes as Korean airlines are gaining access to some of the most commercially attractive China routes. In the latest allocation of traffic rights, the government gave major LCCs additional slots on routes linking Seoul with Beijing and Shanghai, as well as Guangzhou, Dalian and other Chinese cities.
Jeju Air and Eastar Jet each secured seven weekly flights on the Incheon-Beijing route, while Parata Air and Air Premia received four and three weekly slots, respectively, on the Incheon-Shanghai route. Jin Air also secured seven weekly flights between Incheon and Guangzhou.
The development could provide a much-needed boost for LCCs, which have struggled to turn strong passenger demand into profits this year.
Passengers wait to check in at Terminal 1 of Incheon International Airport, Wednesday, ahead of the Chuseok holiday. Yonhap
Jeju Air, Jin Air and Trinity Airways, formerly T’way Air, all posted operating losses in the second quarter. Jeju Air reported an operating loss of 52.4 billion won, while Jin Air’s operating loss widened to 73.1 billion won. Higher fuel costs and unfavorable exchange rates weighed heavily on their margins.
China is emerging as a fresh source of revenue for Korean LCCs as competition on Japan and Southeast Asian routes intensifies. Beijing and Shanghai are particularly meaningful revenue areas, serving not only as major tourism destinations, but key centers for Korean corporate activities, making their traffic less dependent on seasonal travel demand.
The challenge for LCCs will be turning the surge in demand into sustainable earnings. Chinese carriers are also expanding their operations in Korea, potentially intensifying price competition.
“The shift toward China gives Korean LCCs a fresh opportunity to diversify beyond saturated short-haul markets particularly to Japan,” an official from the aviation industry said.
“Chinese routes could become an increasingly important earnings pillar for budget carriers seeking to rebuild profitability and reduce earnings reliance on routes to Japan and other major Southeast Asian tourism destinations.”