[Post-Covid-19 New Normal] Will Korea's airline industry ever really take off again?
Throughout his 28-year career, Park Yi-sam enjoyed the perks of living as a pilot. He received a higher salary than his friends and often took his family on overseas trips, not to mention the respect people showed toward him and his family.
Like so many others, Park's world came crashing down with the outbreak of the Covid-19 pandemic. His lavish lifestyle was quickly overtaken by mounting piles of debt, and Park started to genuinely worry about how he would feed his family. In April, two months after Eastar Jet stopped paying Park's full wage, his wife started working at a restaurant in order to pay the bills.
That didn't last long either — she lost the job after the government imposed stricter regulations on restaurants on Aug. 30 to curb a spike in coronavirus cases.
“I never imagined such a thing would happen to me,” said Park, the head of Eastar Jet’s pilot union, during an interview on Sept. 1. “I have been through numerous viruses, including the severe acute respiratory syndrome [SARS] and the Middle East respiratory syndrome [MERS], but never has any of them lasted as long or impacted the world as much as Covid-19.”
Park is now considering taking on a part-time job as a delivery driver to make ends meet. Many of his colleagues have already taken that step, working as day laborers at construction sites, moving produce in cold storage facilities or even working as an extra in the entertainment industry.
The aviation industry has been one of the hardest hit by Covid-19. With travel restrictions now in place around the world, airlines have been unable to operate overseas routes, significantly more profitable than domestic alternatives.
As a result, airlines have been forced to either cut down routes or stop operations entirely.
Eastar Jet shut down operations of domestic and overseas routes starting in March.
Korean Air Lines shrunk its international routes from 110 before the virus to 34 as of September, while Asiana Airlines similarly reduced international routes from around 70 to 25 during the same period.
No flights means no money and no work, so airline employees were put on unpaid leave, including those from Asiana Airlines.
But even unpaid leave was a stretch for some airlines, resorting to large-scale layoffs instead.
Eastar Jet employees haven’t been paid properly since February. After bigger budget carrier Jeju Air decided not to acquire Eastar Jet earlier this year, 605 of the remaining 1,300 employees were laid off. Back of March, Eastar had around 1,600 employees.
Among those laid off was a 31-year-old co-pilot surnamed Jang. He was in his third year with Eastar Jet before Covid-19 surfaced.
Jang graduated university with 140 million won ($119,000) in debt due to the expensive pilot training programs, with 70 million won still remaining to be paid back.
“All I have learned my whole life is to be a pilot,” Jang said. “It’s a very specialized job. So no matter how hard I look into different career paths, there just seems to be no other option.”
A stewardess from Asiana Airlines said her colleagues are also fearing layoffs as a result of the collapse of an acquisition deal with Hyundai Development Company.
“Internally, we expect a major layoff,” said a member of Asiana Airlines cabin crew who wished to remain anonymous. “Employee reactions toward potential layoffs are divided into two groups. One group is preparing to prove to the company that they’re valuable assets by studying foreign languages, while the other group is preparing to find a new career. Home shopping channel hosts and TV meteorologists are a few of the careers they are considering.”
Apart from airline employees, those working at airports, duty-free shops, travel agencies, hotels and other partnering companies, like catering service providers or engine makers, have all been affected by the reduced number of international travelers.
According to data from the Korea Economic Research Institute earlier this month, a total of 119,000 jobs linked to the tourism industry that were expected to have been created from March through June this year never came into existence.
During that period, the number of foreign tourists dipped 98.97 percent to 52,487 from 5,105,686.
Following the pandemic, the number of travelers plummeted.
Just in August, the total number of passengers passing through Incheon International Airport fell to 235,000, 96.3 percent less than the same month a year earlier.
Budget carriers are particularly vulnerable to the falling numbers.
In Korea, there are nine low-cost carriers, including the newly launched Fly Gangwon, Aero K and Air Premia.
The largest among them is Jeju Air, which saw its sales dip 62.4 percent on year to 265.28 billion won in the first half of the year. It swung to 202 billion won in net loss from 12.64 billion won profit during the same period the previous year, possibly explaining the reason it pulled out of the Eastar Jet deal.
The second-largest Jin Air, 60 percent owned by Hanjin KAL, also saw its sales fall 66.85 percent on year to 167.13 billion won in the first half of the year. It swung to 104.74 billion won in net loss during the same period from 7.42 billion won profit a year ago.
Other budget carriers, including Air Busan and T’way Air, also suffered net losses this year.
Among the three new low-cost carriers, only Fly Gangwon has been able to start operating flights. Aero K and Air Premia are yet to receive air operator’s certificates (AOC) from the Ministry of Land, Infrastructure and Transport. The reason for the delay hasn’t been explained, but AOCs are required for an airline to begin operating flights.
Despite the lack of travelers, full-service carriers have seen their earnings improve slightly in the second quarter thanks to a new focus on cargo transportation.
Korean Air Lines’ sales in the second quarter went down 44.63 percent on year to 1.73 trillion won, but it swung to a net profit during the same period to 117.37 billion won, from a loss of 365.06 billion won.
“Around 30 percent of air cargo is transported via passenger aircraft globally,” said Hong Seok-yun, a spokesperson for Korean Air Lines. “But following the international lockdowns, that 30 percent of the air cargo transportation has diminished. The decreased supply helped raise transportation prices, improving the profit model.”
Earlier this month, Korean Air Lines remodeled the interior of two B777-300ER passenger aircraft to carry more cargo.
Asiana Airlines also saw improved earnings from cargo transportation.
Its sales decreased 49.21 percent on year in the second quarter to 886.41 billion won, but it turned to 50 billion won in net profit from 202.44 billion won in net loss during the same period.
Analysts project the cargo boom will continue for the rest of the year.
“The market conditions for cargo transportation in July and August rose 1.4 percent on year,” said analyst Ryu Je-hyun from Mirae Asset Daewoo.
“Cargo transportation will continue to make profits throughout the fourth quarter, which is traditionally the peak season. Losses from sluggish international transportation of passengers are projected to continue.”
Attempts at structural reform
Airline struggles are continuing due to uncertainties in the industry, which have already led to the collapse of acquisition deals for both Eastar Jet and Asiana Airlines.
On Sept. 11, Kumho Industrial terminated an acquisition deal it signed with HDC after the construction company continuously delayed closing the deal and demanded further due diligence. In July, Jeju Air abandoned its acquisition of Eastar Jet, saying its shareholders didn’t think it was a good idea.
The collapse of the acquisition deals left more than 600 Eastar Jet employees unemployed and Asiana Airlines being managed by its creditor Korea Development Bank (KDB).
Some experts argue that mergers between airlines are needed to stop them from going bankrupt.
“Instead of waiting for government support or for the virus to come to an end, carriers need to actively find solutions on their own, including merging with another carrier,” said Prof. Hur Hee-young, who teaches business at Korea Aerospace University. “Mergers aren’t common business practice in Korea, but merging could help airlines save a lot of jobs. Aviation is a network business. By merging, they can share routes and fly fewer unseated planes, saving cost.”
Previous mergers by overseas airlines include Air France’s merger with KLM Royal Dutch Airlines in 2004, which changed the company name to Air France KLM, and America West Airlines' merger with US Airways in 2005.
Prof. Choi Jeong-chul, who teaches at the Graduate School of Manufacturing Innovation at Inha University, believes low-cost carriers (LCCs) just have to hang in there a little longer until Covid-19 is over.
“LCCs play the role of connecting local airports in suburbs to overseas international airports in suburban areas, which are routes not easily operated by full-size carriers due to the size of their planes,” said Choi. “It shouldn’t be generalized that LCCs are a saturated market just because they are facing heated competition for domestic routes. Until Covid-19 stabilizes, LCCs should hang in there by cutting costs through various measures, including unpaid leave.”
Future of the industry
Opinions on whether travel demand will ever fully recover remain divided.
Prof. Choi from Inha University believes everything will go back to normal once a Covid-19 vaccine is developed.
“Once a vaccine is developed, Covid-19 will be regarded as a simple flu that people can easily get over. When we reach that period, the repressed desire to travel will burst and boost travel demand,” Choi said.
Prof. Hur from Korea Aerospace University, on the other hand, believes flying will become an expensive transportation means in the post Covid-19 era.
Since seats have been rearranged to ensure social distancing, the price of tickets will increase, especially on long-distance routes like to Europe or America. This is projected to shrink demand for long-distance travel, according to Hur.
Hur added that chartered services will rise as an alternative for wealthy people in the post-Covid-19 era.
“Since airlines hardly fly any international routes, an increasing number of people could turn to private services business aviation to go on trips.” Hur said.
“This is common overseas, especially in developing countries where newly rich people live. In Korea, however, the market has been stagnant because of the general anticonglomerate sentiment, meaning people disagree with the idea of rich businesspeople enjoying special treatment.”
Businesspeople, who are usually on a tight schedule, can save time using chartered and private services with shortened customs processes and by directly flying to the destination instead of having to transit when flying to a destination that can’t be reached by commercial airlines.
“Business aviation contributes to boosting local economies by adding jobs, as aircraft need to be cleaned, refueled and go through maintenance after landing,” Hur added.
BY JIN MIN-JI [firstname.lastname@example.org]
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[Post-Covid-19 New Normal] Will Korea's airline industry ever really take off again?