As international passenger demand matures, the growth formula for South Korea's airline industry is facing challenges. Increased volatility in international oil prices and exchange rates, coupled with high interest rates, has made cost control difficult. Meanwhile, strategies aimed at expanding size based on passenger growth are hitting limits. Experts suggest a shift from a "wait-and-see" management approach to restructuring businesses around profitability.
According to the Ministry of Land, Infrastructure and Transport's aviation information portal, South Korea's annual air passenger count reached 124,793,082 last year, a 3.9% increase from the previous year. This figure surpasses the previous record of 123,366,608 passengers set in 2019. Projections indicate that the total could exceed this record again, with 98.6 million passengers recorded by September this year.
While the numbers indicate clear growth in the airline sector, the rapid recovery seen post-COVID-19 is tapering off, leading to diminishing growth potential. In fact, the growth rate for passenger numbers in 2025 is expected to be 3.9%, significantly lower than the 19.4% growth seen in 2024. Although passenger demand continues to rise, it remains uncertain whether the same growth trajectory can be maintained.
Particularly concerning for airlines are the uncontrollable external factors of oil prices and exchange rates, which significantly impact profitability. Recent geopolitical changes have led to fluctuations in international oil prices, while a strong dollar complicates cost predictions and management for airlines. Rising jet fuel prices increase operational costs, and a higher won-dollar exchange rate raises the burden of costs paid in dollars, such as aircraft leasing and maintenance. Coupled with high interest rates, financial costs for aircraft acquisition and loan repayments are also increasing.
From a demand perspective, expanding operations based on past high growth rates is becoming increasingly difficult. Analysts predict that the structural increase in overseas travel demand over the past decade, excluding the COVID-19 period, will gradually slow. Even with rising passenger numbers, a decline in growth rates could limit revenue growth from new routes and aircraft.
In some markets, intense price competition among airlines has turned into a "chicken game," eroding profitability. As airlines expand discount fares to boost load factors, increased passenger numbers and revenue may not translate into higher profits. Low-cost carriers (LCCs), which rely heavily on price competitiveness, face greater challenges in maintaining profitability as fare wars continue. If route expansions and increased supply outpace demand, downward pressure on ticket prices will likely intensify.
Ultimately, the industry faces the challenge of moving away from a growth-centric management approach reliant on increasing passenger numbers, focusing instead on enhancing route profitability. Even with high load factors, a significant proportion of discounted fares can hinder expected profits. Airlines must comprehensively assess route demand, fare levels, and operational costs to adjust aircraft deployment accordingly. Efficient management of aircraft utilization and maintenance schedules, along with optimizing workforce allocation and ground handling costs, is also crucial. While rapid increases in passenger demand may allow for growth through route and supply expansion, a slowdown in growth rates could lead to increased competition and reduced profitability.
An industry insider noted, "During periods of rising demand, expanding supply can lead to improved performance, but as growth rates decline, route profitability and cost structures will dictate results. It will become increasingly important to develop operational strategies centered on profitability rather than mere size expansion."
* This article has been translated by AI.
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