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| An image of an Aero K aircraft |
By Kim Hyun-bin
Korea is overflowing with airlines, and the increased competition has already led Jeju Air and Eastar Jet to set in motion emergency management measures to cover major losses. But many experts believe the industry's future will get much worse resulting in mergers and acquisitions (M&A) en masse.
The concerns are based on expected fiercer competition, which will be inevitable when three low-cost carriers (LCCs) ― Fly Gangwon, Air Premia and Aero K ― for which the government issued operation licenses in March, launch operations next year.
The new additions will boost the number of carriers here to 11 ― two full service carriers, Korean Air and Asiana Airlines, as well as nine LCCs, Jeju Air, Jin Air, T'way Air, Eastar Jet, Air Busan, Air Seoul, Fly Gangwon, Air Premia and Aero K.
According to the International Civil Aviation Organization, the U.S. has nine LCCs operating, the same as Korea, while Japan and China, which are larger in size and population than Korea, have eight and six, respectively. So Korea's 11 carriers including nine LCCs is significant considering Korea's population and country size compared to the U.S. or China.
Many experts believe the market will become overly competitive with the 11 carriers fighting for the same piece of the pie and inevitably airlines could go through major restructuring and bankruptcy.
"I believe there will be a time in near future when airlines will go through M&As. Currently, LCCs have been heavily impacted by the Boycott Japan movement and rising oil prices. If this prolongs in addition to the increase in competition, the airlines with the least amount of equity will be taken over," an industry expert said.
Signs are popping up already.
The country's largest LCC, Jeju Air, announced Tuesday that it would hike fares by 7.5 percent for domestic flights connecting to Jeju Island.
It said in a statement that the increase in fares was inevitable to better cope with financial difficulties due to a rise in oil prices, operating prices, currency exchange and aviation risk premiums, and the government's implementation of the 52-hour work week system.
This measure has come after Jeju Air posted 27.4 billion won ($23 million) in operating losses for the second quarter this year, its first deficit since the second quarter of 2014.
Last week Eastar Jet also announced it would initiate emergency cost-cutting efforts, receiving applications from employees for unpaid leave for up to a month.
The carrier has faced its biggest crisis since its foundation in August 2008, due to billions of won in losses from both internal and external environmental factors, the company said.
The current Boycott Japan campaign, which started amid historic and trade disputes between the two countries, hit Eastar Jet hard, because over 40 percent of its international flights were operating to Japanese cities. The grounding of its two Boeing 737 Max 8 planes, which followed two crashes overseas of the same type of aircraft, also affected the company's operations.
Other airlines' situations are also less positive: Jin Air also saw a 26.6 billion won operating loss, T'way Air, 25.8 billion won and Air Busan, 21.9 billion won.
Many experts point out if the situation is prolonged, the airlines will have no choice but to conduct major restructuring.
War over experienced pilots
Besides financial problems, the launch of three new LCCs is expected to bring another competition ― one for experienced pilots.
Fly Gangwon, expected to be the first among the three to launch operations, is already bringing in its first aircraft and is in the last stages of receiving an Air Operator's Certificate (AOC). The carrier aims to start flights in late October on the Yangyang-Gimpo and Yangyang-Jeju routes. Air Premia is also expected to apply for its AOC in late January and plans to launch flights in September next year, while Aero K is speeding up to finish its AOC procedures.
Local carriers have already been suffering from a lack of experienced pilots, and worries are on the rise as the new LCCs will try to "lure" experienced personnel from existing airlines.
"The new LCCs have no ways to foster pilots and maintenance personnel and they will try to recruit experienced personnel from existing airlines, which will create safety concerns due to a lack of crew," an official familiar with the matter said.
The fears have started to become reality with Air Premia announcing it was seeking to hire experienced co-pilots and flight attendants last week. Co-pilots with at least two years experience and over 1,500 flight hours are eligible to apply.
