Korean Air's self-check-in counter is seen at the Incheon International Airport on April 16. [YONHAP]
The Iran war has rattled the global airline industry, but for low-cost carriers (LCCs), the headwinds have been intolerable.
Major Korean carriers have been declaring emergency management measures since March, starting with T’way Air and followed by Asiana Airlines, Korean Air, Jin Air, Air Busan and Air Seoul.
The blow has been especially severe for LCCs, which have less financial room to maneuver than full-service airlines. Some have begun rolling out high-intensity self-rescue measures to cut labor costs.
T’way Air is accepting applications from cabin crew for two months of unpaid leave in May and June, while Aero K has also started accepting applications for unpaid leave from all employees. Jin Air has decided to indefinitely delay the safety encouragement allowance it had been paying employees.
Some LCCs are even facing threats to their survival due to serious deterioration in their financial health. Air Premia posted an operating loss of 32.1 billion won ($22.1 million) last year on a stand-alone basis, pushing its capital impairment ratio to 132 percent. The company has fallen into full capital impairment, meaning its total equity has turned negative because its liabilities now exceed its assets.
The Ministry of Land, Infrastructure and Transport ordered Air Premia to lower its capital impairment ratio to below 50 percent within two years back in September 2024. If the airline fails to improve its financial structure by the deadline, some expect it could face the worst-case scenarios of an air transport license cancellation or business suspension.
The situation has become even harder to manage with the latest shock wave in oil prices.
The problem is that it remains unclear when the geopolitical risks stemming from the Middle East will ease. Fuel surcharges on international tickets issued this month are now being calculated under Level 33, the highest level ever under the Transport Ministry’s distance-based system. Fuel surcharges are additional fees added to the base airfare to help airlines offset losses from surging oil prices.
The monthly surcharge level is adjusted based on the average price of Singapore jet fuel, or the mean of Platt’s Singapore Kerosene, or MOPS. It is the first time Level 33 has been triggered since the current pricing system was introduced in 2016. That marks a vertical jump of 15 levels from last month’s Level 18.
A Korean Air flight takes off at the Incheon International Airport on April 16. [YONHAP]
Jeju Air, the country’s largest LCC, is currently charging fuel surcharges of $52 to $126 one way on international tickets departing Korea. Last month, the range was $29 to $68.
“Frankly, from the airlines’ standpoint, this level of increase is not enough to absorb the burden of higher oil prices,” an industry official said. “No matter how much carriers cut routes, travel demand itself is shrinking, so even if the war in Iran ends, the impact will continue at least through June and July.”
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
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