When Jeju Air’s standing as South Korea’s greatest low-cost service appeared below risk from the merger of the nation’s two greatest airways final 12 months, the corporate’s chief government assured workers that it might “actively reply,” presumably 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 government, as a part of the investigation into the nation’s worst air catastrophe in virtually three a long time. Passengers are canceling bookings, including additional pressure to a steadiness 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 reduce 15 % of its flights till March to “improve operational stability.”
As investigators look into what precipitated 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 upkeep 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 looking for 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 accordance with OAG, a worldwide air journey information 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 funds carriers operated by the 2 firms might be introduced below one model that can surpass Jeju Air as South Korea’s largest low-cost providing.
20 years in the past, Jeju Air turned the nation’s first upstart funds 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 finest identified for promoting laundry detergent and toothpaste. Jeju Air’s second greatest shareholder is Jeju’s provincial authorities.
Jeju Air emerged from a jumble of different small airways to turn out to be the nation’s main low-cast service. It added routes throughout Asia, together with stops exterior of the standard journey hubs, to serve more and more rich South Koreans trying to trip overseas. As measured by the variety of accessible seats, it added capability of 20 % a 12 months on common over the past 12 years, OAG mentioned.
Like many funds airways, Jeju Air saved a good rein on prices, put new expertise in place and squeezed vacationers for even small perks. It centered on brief 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 steady monetary footing till the pandemic struck. Since 2020, it has been pressured to lift capital on three separate events, totaling practically $500 million. In additionally acquired a authorities mortgage 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 persevered 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 tip of subsequent September. That already exceeded its money and money equal steadiness of practically $150 million. And this was earlier than the run on cancellations that’s anticipated to additional crimp its money steadiness.
However analysts mentioned liquidity issues are frequent for low-cost airways.
“Most of those airways, when you have a look at their monetary place, you’d suppose numerous them are financially susceptible however airways have a method to survive this stuff extra so than different firms,” mentioned Brendan Sobie, an unbiased aviation guide and analyst. He defined that firms in airline provide chains have a robust incentive to assist airways that have hassle.
On Thursday, a Jeju Air government dismissed liquidity issues, 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 desires to modernize its fleet to make the most of a South Korean authorities 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 offer precedence to funds airways in awarding new worldwide routes from South Korea to Europe and Asia.
However now, among 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 accordance 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 accordance with the ministry.
Underneath regular circumstances, the distinction in aircraft use can be held up as an indication of Jeju Air’s effectivity, an necessary consideration for low-cost carriers engaged on skinny margins. However via the lens of a lethal crash, the discrepancy raised issues.
Analysts who comply with the aviation trade mentioned flying planes extra usually would don’t have any impression 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 larger 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 exterior the nation.
This observe has additionally helped Jeju Air preserve upkeep prices down at the same time as 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 gasoline and airport prices to maintain up with the surge in site visitors, however upkeep prices, a extra fastened expense, didn’t enhance at an identical fee.
Jonathan Berger, a managing director at Alton Aviation Consultancy, mentioned some outsourcing of upkeep is frequent within the trade. Upkeep work is extremely regulated and audited no matter whether or not it’s outsourced or the place it’s accomplished, he mentioned.
“Jeju Air will not be distinctive,” mentioned Mr. Berger. “All airways outsource a big quantity of upkeep.”
For now, Jeju Air mentioned it might concentrate on repairing its popularity and supporting the victims and their households. The corporate mentioned the plane concerned within the crash was coated by an insurance coverage coverage of as much as $1 billion that can be sure that the households obtain the mandatory support.
Jin Yu Younger contributed reporting.
