When Jeju Air’s status as South Korea’s largest low-cost carrier appeared threatened last year by the merger of the country’s two largest airlines, the company’s chief executive Employees are assured that it will likely “respond proactively” by acquiring smaller competitors;
Now, one a week later Crash The future of Jeju Air, which claimed 179 lives on December 29, has been clouded with even deeper questions.
South Korean authorities raided the company’s offices on Thursday and imposed a travel ban on Chief Executive Kim E-bae as part of an investigation into the country’s worst air disaster in nearly three decades. There are passengers. Canceling a bookingAdding further stress to a heavy balance sheet with debt. And Jeju Air’s stock price, which was already trading near record lows, has fallen 10 percent since the disaster.
Earlier in the week, Mr. Kim said Jeju Air would cut its flights by 15 percent through March to “enhance operational stability.”
As investigators look into what caused Jeju Air Flight 7C2216 to crash, the airline faces government and public scrutiny over how it operates. Some of its operational practices are being challenged, including how it flies its aircraft more frequently than competitors and how Outsourced its maintenance. Abroad
At a news conference at Moan International Airport on the day of the crash, Mr. Kim said a maintenance check had found no problems with the plane, which he said had no history of the crash. In a public statement, Jeju Air said it was “committed” to helping anyone affected by the crash and was “fully cooperating” with the investigation into the cause. He did not immediately return a phone call seeking comment.
Jeju Air’s business outlook was already uncertain. Over the past two years, like other airlines, the company has faced rising costs due to inflation and high interest rates. Jeju Air’s flight capacity had not fully returned to 2019 levels. OAGa global air travel data provider. The carrier operates 4 percent fewer flights in 2024 than before the Covid pandemic in 2019.
The incident occurred after Korean Air completed its acquisition of a majority stake in Asiana Airlines last month. The merger — a $1.05 billion deal that was agreed upon four years ago — will eventually create a single national carrier. As part of the deal, the three budget carriers operated by the two companies will be brought under one brand that will overtake Jeju Air as South Korea’s lowest-cost offering.
Two decades ago, Jeju Air became the country’s first upstart budget airline aiming to challenge the duo of Korean Air and Asiana. Jeju Air will fly the busy tourist route between Seoul and Jeju, a beautiful island off the southern coast of South Korea. The airline is majority owned by AK Holdings, which is best known for selling laundry detergent and toothpaste. Jeju Air’s second largest shareholder is the Jeju Provincial Government.
Jeju Air emerged from the fray of other smaller airlines to become the country’s leading low-cost carrier. It added routes across Asia, including stops outside traditional travel hubs, to serve increasingly affluent South Koreans seeking overseas vacations. As measured by the number of available seats, it has increased capacity by an average of 20 percent annually over the past 12 years, the OAG said.
Like many budget airlines, Jeju Air has kept a tight rein on costs, accommodated new technology and pressed passengers for even small concessions. It focused on short regional flights served by a single, single-aisle model of aircraft. Boeing 737-800.
“It is a reliable low-cost carrier with good access to Southeast Asia and North Asia,” said Mayur Patel, OAG’s regional sales director.
After an initial public offering in 2015, Jeju Air was on fairly stable financial footing until the pandemic struck. Since 2020, it has been forced to raise capital on three separate occasions, totaling around $500 million. I received it too. A government loan $29 million on the condition that it retain 90 percent of its workforce.
Even as travel restrictions were lifted and demand for Jeju Air increased, its debt problems persisted as its costs rose as fast as its revenues.
In a corporate filing, Jeju Air said it will have to pay down about $165 million in short-term debt by the end of next September. It has already exceeded its cash and cash equivalents balance of about $150 million. And that was before a run on cancellations is expected to further reduce its cash balance.
But analysts said liquidity concerns are common for low-cost airlines.
“Most of these airlines, if you look at their finances, you’d think a lot of them are financially weak, but airlines have more of these things than other companies. There’s a way to survive,” said Brandon Sobey, an independent aviation consultant and analyst. . Companies in airline supply chains have a strong incentive to help struggling airlines, he explained.
On Thursday, a Jeju Air executive Dismissed liquidity concerns.The company is moving ahead with expansion plans, including a deal to buy 40 new planes from Boeing over the coming years, he said.
The company wants to modernize its fleet to take advantage of this. South Korean government plan Supporting low-cost airlines as a counter to the monopoly threat posed by the union of Korean Air and Asiana. The government said it planned to prioritize budget airlines in launching new international routes from South Korea to Europe and Asia.
But now, some of the operating practices that helped Jeju Air keep its costs down are under a microscope.
Jeju Air flies its Boeing 737-800 fleet more frequently than its competitors. In the first 11 months of 2024, Jeju Air flew its planes an average of 14.1 hours per day, according to South Korea’s Ministry of Land, Infrastructure and Transport. That compared with 8.6 hours for Korean Air and 11.4 hours for its low-cost carrier, Jin Air, according to the ministry.
Under normal circumstances, the difference in aircraft utilization would be maintained as a sign of Jeju Air’s performance, which is important for low-cost carriers operating on thin margins. But through the lens of a fatal accident, the discrepancy raised concerns.
Analysts who follow the aviation industry say the flight will not have much of an impact on the carrier’s safety as long as regulators continue to closely monitor how many hours its pilots fly and how many hours they fly. There are standards for maintaining a fleet of
At a media briefing on Tuesday, Jeju Air was barraged with questions about maintenance, including the practice of outsourcing maintenance to overseas experts. Unlike Korean Air or Asiana, which have more facilities and personnel to handle more of their maintenance, Jeju Air and the country’s other independent low-cost carriers rely mostly on outsourcing operations.
The practice has also helped Jeju Air keep maintenance costs low even as its other major costs have risen.
In 2023, Jeju Air’s revenue more than doubled from the previous year. It spent twice as much on fuel and airport costs to keep up with the increase in traffic, but maintenance costs, more fixed costs, did not rise at the same rate.
Jonathan Berger, managing director of Alton Aviation Consultancy, said some outsourcing of maintenance was common in the industry. Maintenance work is highly regulated and audited regardless of whether it is outsourced or where it is performed, he said.
“Jeju Air is not unique,” Mr Berger said. “All airlines outsource a significant amount of maintenance.”
For now, Jeju Air said it will focus on repairing its reputation and helping the victims and their families. The company said the plane involved in the crash was covered by an insurance policy of up to $1 billion that will ensure the families receive the help they need.
Jin Yoo Young Cooperation reporting.