Shares of Korea’s budget carriers rise on expectations of strong Q1 earnings

[Photo provided by Jin Air]

Shares of low-cost carriers are rising as they are expected to turn profitable in the first quarter of this year on the back of a recent increase in overseas travelers.

Jeju Air Co., South Korea’s biggest low-cost airline, is expected to post an operating profit of 53.3 billion won ($40.7 million) in the first quarter, compared with a loss of 78.9 billion won a year earlier, according to FnGuide on Monday. T’way Air Co is expected to post an operating profit of 28.6 billion won in the first quarter after posting a loss of 39 billion won a year earlier.

Jin Air Co., which succeeded in swinging to a profit in the fourth quarter of last year, is projected to post its largest operating profit of 41.1 billion won in the first quarter of this year, exceeding market expectations of 38 billion won.

Analysts attribute improved performances at budget carriers in the first quarter to a sharp increase in the number of short-haul travelers to Japan and Southeast Asia. According to data from the Ministry of Land, Infrastructure and Transport, the number of passengers on international flights in January and February stood at 4.62 million and 4.56 million, respectively. The number of international passengers has been rising sharply, exceeding 4 million for the first time in December since the outbreak. This trend is expected to continue in March.

[Photo provided by T’way Air]

Budget carriers are filling more of their seats than their bigger full-service rivals. Jeju Air and T’way Air filled 95.8 percent and 95.1 percent of their seats in the first two months of this year, respectively. Jin Air and Air Busan Co. also saw 91.1 percent and 90.2 percent, respectively, of their seats filled.

Seats on Korean Air Co. and Asiana Airlines Inc., on the other hand, were only 87.9 percent and 85.6 percent filled, respectively. Korea Investment & Securities Co. noted that the number of international passengers for LCCs in the first two months recovered to more than 80 percent of the pre-Covid levels, while large airlines saw only a 50 percent recovery.

The rise in ticket prices that have risen above levels seen before the pandemic is also helping turn the LCCs around. The financial investment industry projected that LCCs will continue to perform well in the second quarter of this year, as demand for flights to China is expected to increase as China lifted key parts of its zero-Covid policy. Chinese authorities recently said that they will increase inbound and outbound international passenger flights planned for this summer-autumn season, which began on March 26, to 6,772 a week from 790.

Against this backdrop, shares of LCCs have been on the rise since mid-March as institutional investors have flocked to buy their shares on expectations of improved earnings in the first quarter of this year. T’way Air shares rose 19.05 percent from March 16 to April 3. Jeju Air and Jin Air also saw their shares gain 14.34 percent and 13.41 percent, respectively, over the same period.