(Aero K Airlines)
South Korean low-cost carriers (LCCs) are facing a sweeping wave of restructuring due to the double whammy of a weak currency and soaring global oil prices.
According to aviation industry sources on Sunday, Aero K Airlines Co., a budget carrier based in Cheongju, North Chungcheong Province, has recently begun accepting applications for unpaid leave from all employees.
It is the second such case in the industry following T’way Air Co.
T’way Air is accepting temporary unpaid leave applications from cabin crew for two months, from May to June.
Jin Air Co. has also indefinitely postponed the planned payment of safety incentive bonuses that were to be given to all employees, while Air Premia Co. has put internal promotion evaluations on hold.
“Even before the current crisis, losses had been piling up, and with the added burden of a weak currency and high fuel prices, simply surviving each month has become the goal,” said an industry official. “Right now, we are just watching to see how much ammunition our company has left and how long our competitors can hold out.”
The profit structure of Korean LCCs is inherently vulnerable to external shocks.
Fuel costs and aircraft lease payments, which account for about 30 percent of operating expenses, are paid entirely in U.S. dollars.
As the exchange rate rises, airlines are forced to absorb massive losses.
While full-service carriers use risk-hedging tools such as fuel hedging (futures contracts) and currency hedging to prepare for spikes in oil prices and exchange rates, most LCCs lack the financial capacity to employ such measures.
Even major LCCs such as T‘way Air, Jeju Air Co., and Jin Air—which each recorded over 1 trillion won ($678.55 million) in revenue last year on the back of record passenger demand—all posted operating losses.
The financial crisis has pushed lower-tier LCCs past a critical threshold.
Air Premia recorded a capital impairment ratio of 132 percent as of the end of last year, entering a state of complete capital erosion. If it fails to resolve this issue by December, its air transport business license could be revoked in the worst-case scenario.
The situation is also dire for Cheongju-based Aero K.
The airline’s mounting losses spread to its parent company’s financial statements, leading its largest shareholder, DAP Corp.—an affiliate of Daemyung Chemical Co.—to be designated as a watchlist stock and face the risk of delisting.
Ultimately, DAP transferred its entire 70 percent stake in Aero K to an unlisted company owned by the Daemyung Chemical family for just 1 won per share, totaling a mere 3.23 million won.
Corporate crises are being directly passed on to consumers.
T‘way Air sharply raised excess baggage fees on some international routes at the end of March, while other airlines are moving to raise seat selection fees or increase in-flight meal prices.
Under current regulations, if an airline cancels a flight due to a “change in business plans,” it is only required to refund the ticket price.
Indirect losses—such as cancellation fees for pre-booked accommodations or local tours, or the price difference for alternative flights—must be fully borne by customers.
In particular, consumers who booked through global online travel agencies (OTAs) such as Agoda often face non-refundable policies, even when submitting official flight cancellation documents, forcing them to absorb penalty fees.
Korea, along with the U.S., has the highest numbers of LCCs in the world, with 10 carriers currently engaged in intense competition.
An industry official noted that “if airlines without fundamental competitiveness are weeded out, the profitability and service quality of the surviving carriers could improve.”
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