When Jeju Air’s standing as South Korea’s largest low-cost service appeared below menace from the merger of the nation’s two largest airways final 12 months, the corporate’s chief govt assured employees that it could “actively reply,” probably by buying smaller rivals.
Now, every week after a crash that killed 179 individuals on Dec. 29, Jeju Air’s future is clouded by even deeper questions.
South Korean officers on Thursday raided the corporate’s places of work and imposed a journey ban on Kim E-bae, the chief govt, as a part of the investigation into the nation’s worst air catastrophe in nearly three many years. Passengers are canceling bookings, including additional pressure to a stability sheet heavy with debt. And Jeju Air’s inventory value, already buying and selling close to report lows, has fallen 10 % for the reason that catastrophe.
Earlier within the week, Mr. Kim mentioned that Jeju Air would minimize 15 % of its flights till March to “improve operational stability.”
As investigators look into what brought about Jeju Air Flight 7C2216 to crash, the airline has come below intense authorities and public scrutiny for the way it operates. A few of its operational practices are being challenged, together with the way it flew its planes extra steadily than rivals and the way it outsourced its maintenance abroad.
At a information convention at Muan Worldwide Airport on the day of the crash, Mr. Kim mentioned that upkeep checks had discovered no issues with the aircraft, which he mentioned had no historical past of accidents. In a public assertion, Jeju Air mentioned it was “dedicated” to serving to anybody affected by the crash and was “absolutely cooperating” with investigations into its trigger. It didn’t instantly reply to a telephone name in search of remark.
Jeju Air’s enterprise outlook was already unsure. During the last two years, like different airways, the corporate has grappled with elevated prices due to inflation and better rates of interest. The capability of Jeju Air’s flights had not absolutely returned to 2019 ranges, in keeping with OAG, a world air journey knowledge supplier. The service operated 4 % fewer flights in 2024 than earlier than the Covid pandemic in 2019.
The crash got here after the completion of Korean Air’s acquisition of a majority stake in Asiana Airways final month. The merger — a $1.05 billion deal agreed upon 4 years in the past — will ultimately create a single nationwide service. As a part of that deal, three price range carriers operated by the 2 corporations can be introduced below one model that may surpass Jeju Air as South Korea’s largest low-cost providing.
Twenty years in the past, Jeju Air turned the nation’s first upstart price range airline with the purpose of difficult the duopoly of Korean Air and Asiana. Jeju Air would fly the busy vacationer route between Seoul and Jeju, a scenic island off the southern coast of South Korea. The airline is majority-owned by AK Holdings, a conglomerate greatest recognized for promoting laundry detergent and toothpaste. Jeju Air’s second largest shareholder is Jeju’s provincial authorities.
Jeju Air emerged from a jumble of different small airways to turn into the nation’s main low-cast service. It added routes throughout Asia, together with stops outdoors of the normal journey hubs, to serve more and more rich South Koreans seeking to trip overseas. As measured by the variety of accessible seats, it added capability of 20 % a 12 months on common during the last 12 years, OAG mentioned.
Like many price range airways, Jeju Air saved a good rein on prices, put new know-how in place and squeezed vacationers for even small perks. It centered on quick regional flights served by the identical mannequin of airplane, the single-aisle Boeing 737-800.
“It’s a dependable low-cost service with good attain into Southeast Asia and north Asia,” mentioned Mayur Patel, a regional gross sales director for OAG.
After an preliminary public providing in 2015, Jeju Air was on pretty secure monetary footing till the pandemic struck. Since 2020, it has been pressured to boost capital on three separate events, totaling almost $500 million. In additionally obtained a government loan of $29 million on the situation that it keep 90 % of its work power.
Even after journey restrictions have been lifted and Jeju Air was awash in pent-up demand, its debt issues continued as a result of its prices have been going up simply as quick as its income.
In company filings, Jeju Air mentioned it should repay roughly $165 million in short-term loans by the top of subsequent September. That already exceeded its money and money equal stability of almost $150 million. And this was earlier than the run on cancellations that’s anticipated to additional crimp its money stability.
However analysts mentioned liquidity considerations are widespread for low-cost airways.
“Most of those airways, should you have a look at their monetary place, you’d assume quite a lot of them are financially susceptible however airways have a option to survive this stuff extra so than different corporations,” mentioned Brendan Sobie, an unbiased aviation advisor and analyst. He defined that corporations in airline provide chains have a robust incentive to assist airways that have hassle.
On Thursday, a Jeju Air govt dismissed liquidity concerns, saying that the corporate was continuing with growth plans, together with a deal to buy as much as 40 new planes from Boeing within the coming years.
The corporate needs to modernize its fleet to benefit from a South Korean government plan to help low-cost airways as a counter to the monopoly danger posed by the union of Korean Air and Asiana. The federal government mentioned it deliberate to provide precedence to price range airways in awarding new worldwide routes from South Korea to Europe and Asia.
However now, a number of the working practices that helped Jeju Air preserve its prices low are below a microscope.
Jeju Air flew its fleet of Boeing 737-800 planes extra steadily than its rivals. Within the first 11 months of 2024, Jeju Air flew its planes 14.1 hours on common per day, in keeping with South Korea’s Ministry of Land, Infrastructure and Transport. This in contrast with 8.6 hours for Korean Air and 11.4 hours for its low-cost service, Jin Air, in keeping with the ministry.
Beneath regular circumstances, the distinction in aircraft use can be held up as an indication of Jeju Air’s effectivity, an vital consideration for low-cost carriers engaged on skinny margins. However by the lens of a lethal crash, the discrepancy raised considerations.
Analysts who comply with the aviation trade mentioned flying planes extra usually would haven’t any influence on a service’s security so long as regulators maintained strict oversight of what number of hours its pilots fly and its requirements for sustaining its fleet.
At a media briefing on Tuesday, Jeju Air was barraged with questions on upkeep, together with its observe of outsourcing upkeep to abroad specialists. Not like Korean Air or Asiana, which have better services and personnel to deal with extra of their very own upkeep, Jeju Air and the nation’s different unbiased low-cost carriers rely totally on sending work outdoors the nation.
This observe has additionally helped Jeju Air preserve upkeep prices down whilst its different main bills have risen.
In 2023, Jeju Air’s income greater than doubled from the earlier 12 months. It spent twice as a lot on gas and airport prices to maintain up with the surge in site visitors, however upkeep prices, a extra mounted expense, didn’t enhance at an identical price.
Jonathan Berger, a managing director at Alton Aviation Consultancy, mentioned some outsourcing of upkeep is widespread within the trade. Upkeep work is very regulated and audited no matter whether or not it’s outsourced or the place it’s executed, he mentioned.
“Jeju Air isn’t distinctive,” mentioned Mr. Berger. “All airways outsource a major quantity of upkeep.”
For now, Jeju Air mentioned it could give attention to repairing its popularity and supporting the victims and their households. The corporate mentioned the plane concerned within the crash was lined by an insurance coverage coverage of as much as $1 billion that may be certain that the households obtain the required support.
Jin Yu Younger contributed reporting.
