[Sponsored Report] Jeju Air spreads its wings in travel

Guest Reports

Published: 12 Dec. 2016, 20:22

[Sponsored Report] Jeju Air spreads its wings in travel

Jeju Air, which started operations with just one aircraft in 2006, now aims to possess over 30 planes by 2017. [JEJU AIR]

Jeju Air began operations in 2006 with just one aircraft and quickly expanded its fleet to over 10 planes by 2012. Now, the low-cost carrier aims to boost its fleet size to 30 by 2017 and reach a sales figure of 1 trillion won ($855 million) in 2018 to hold its place as the largest low-cost airline in Korea.

In the third quarter this year, Jeju Air achieved sales of 221.7 billion won and profit of 38.2 billion won, a record-high figure for the company.

The growth of Jeju Air has been based on various efforts to improve its structure.

First, Jeju Air reduced the percentage of costs to sales. It has been decreasing every year for the past five years, from 88 percent in 2012 to 85.8 percent in 2013, 28.9 percent in 2014 and 79.9 percent in 2015. So far this year, the figure is about 78 percent.

This decrease is the result of the company achieving economies of scale by expanding flight routes and growing its fleet to disperse fixed costs.

Through its efficient management of liabilities and capital in the past five years, Jeju Air has increased its asset value fourfold. Jeju Air’s total assets went from 35.9 billion won in 2012 to 55.8 billion won in 2013, 72.6 billion in 2014 and 129.2 billion in 2015. Up until the third quarter this year, assets totaled 267.1 billion won.

As a result, the company’s debt ratio has experienced a continual fall from 252.4 percent in 2012 to 111.6 percent this year.

The airline holds an abundant amount of cash as well, largely from a great inflow of money that came in when Jeju Air was listed in 2015 as well as continuously improving business results.

In 2012, Jeju Air had 31.4 billion won in cash. Now, the low-cost carrier has 331.7 billion won, 10 times more than in 2012. With the increased cash supply, Jeju Air is now planning new ventures for sustainable growth.

The airline plans to make indirect investments in a hotel that will be built together with a new shopping mall near Hongik University Station. It will be a “budget hotel” to complement the low-price business model of Jeju Air, and is expected to attract more passengers of inbound flights.

Jeju Air will also change the management system of its aircraft. Instead of managing all of its planes on operating leases, the airline plans to actually own some of its aircraft in the future.

The company will purchase three Boeing 737-800 planes and introduce them as part of Jeju Air’s fleet in 2018. Currently, all 25 of Jeju Air’s planes are on operating leases, but through the purchase of new aircraft, the budget airline expects to save on maintenance costs and lease payments.

On top of that, the Value Alliance, a low-cost carrier alliance founded in May 2016 with Jeju Air as a member, will begin offering ticket purchasing services next year. This is expected to raise demand for Jeju Air flights.

Through its new growth strategies such as investing in hotels and the Value Alliance, Jeju Air aims to become an unrivaled “network company” that offers various other services like accommodations, travel agencies and car rentals for flight passengers to provide the best in travel service.