Jeju Air swings to operating loss in Q2 due to fall in travel demand, weak Korean won

2019.08.07 09:18:59

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South Korea’s leading budget carrier Jeju Air Co. logged an operating loss of 27.4 billion won ($22.6 million) in the second quarter, slipping into the red for the first time in five years due to falling travel demand amid intensifying competition, as well as the weaker Korean currency.

Jeju Air said in a regulatory filing on Tuesday that it logged an operating loss of 27.4 billion won on a consolidated basis in the April-June period, sinking into the red from an operating profit of 57 billion won in the previous quarter and 11.6 billion won in the same period last year. Sales reached 313 billion won in the second quarter, down 20.3 percent on quarter and up 10.5 percent on year.

The last time Jeju Air logged a quarterly operating loss was in the second quarter of 2014 when it posted a loss of 1.9 billion won.

Shares of Jeju Air ended 3.03 percent lower at 24,000 won on Tuesday.

The company, already grappling with intensifying industry competition, blamed the fall in travel demand, the weaker Korean won against U.S. dollar, and higher fuel cost to the poor earnings. The outlook for Jeju Air’s earnings in the third quarter also remains dim, especially as bilateral relations between Korea and Japan have reached its worst level in decades after Tokyo’s economic retaliatory measures against Seoul.

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The deterioration in the ties between the two neighboring countries has made Koreans shun trips to Japan as part of Korean consumers’ boycott campaign against Japanese goods and services to denounce Japan’s moves to weaponize trade for political reasons. Jeju Air’s revenue from flights to and from Japan accounts for about 25 percent of its total revenue, and their profit contribution is relatively bigger than its local rivals.

But its flight occupancy rate fell from the upper 80 percent range in July last year, to the lower 80 percent range in the same month this year. Reservation rate for August is also in the 70 percent level.

In a move to reduce its dependency on its Japanese routes, Jeju Air is considering reducing flights to Japan and adding more to China.

In May, Jeju Air was granted fresh traffic rights from the Ministry of Land, Infrastructure, and Transport, to operate 35 weekly flights to nine destinations from main and regional airports in Korea, including Incheon-Beijing, Incheon-Yanji, and Incheon-Harbin flights. Once new flights are added, Jeju Air will be operating 19 routes to China.

Jeju Air plans to launch about 8 new flights to China this month, including to Nantong, Yanji, Harbin, Zhangjiajie, and Xian.

NH Investment & Securities Co. said that the Incheon-Beijing route, in particular, is a short-distance flight but with sufficient demand, which guarantees profitability. Jeju Air will be able to raise an additional 80 billion won in sales and 6.5 billion won in operating profit annually when flights to China are added.

By Noh Hyun and Lee Eun-joo

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