Air Transportation Industry
The author is an analyst for NH Investment & Securities. He can be reached at ys.jung@nhqv.com -- Ed.
Following on from March, the gap in traffic performance between FSCs and LCCs continued to widen in April. However, in terms of share performance, competitive repositioning or market share expansion is more important than short-term traffic performance.
Widening traffic performance gap between FSCs and LCCs
Although April is a slow season for the airline passenger market, overall passenger traffic has been relatively strong, increasing slightly. However, low-cost carriers (LCCs) saw a decline in capacity, while full-service carriers (FSCs), which have been actively expanding supply, saw a rise in capacity. Long-haul and China routes are in full swing. In terms of fares, there will be some divergence in the direction between FSCs and LCCs in 2Q23.
With the level of freight rate decline gradually easing and passenger traffic coming in strong, FSCs may outperform expectations. However, in terms of business conditions for the airline industry, we are concerned about a y-y drop in volume and fares in 2024, and we believe that airlines need to adopt strategies to reshape the competitive landscape or expand their market share in order to address peak-out concerns.
April international passenger traffic: +642% y-y, +2.7% m-m; cargo traffic: -15% y-y
International passenger traffic at national airports in April reached 4.86mn travellers (+642% y-y, +2.7% m-m). It is positive to note that traffic volume increased even during the April low season.
Traffic performance by airline shows increasing differentiation between FSCs and LCCs. Demand is strong on China and long-haul (Europe, Americas) routes, the mainstays of large carriers, while demand on Japan and Southeast Asia routes fell m-m. Average daily passenger change (m-m) by airline: Korean Air +9.2%, Asiana +4.1%, Jeju Air -10.0%, Jin Air -11.0%, T'way Air -5.8%, and Air Busan +0.6%.
In terms of fares, LCCs saw a 5% m-m decrease in April fares, while FSCs recorded similar fares m-m, indicating that the off-season effects are likely to be limited.
Cargo volume slid 14.6% y-y to 223,016 tons, but the decline is gradually slowing. Air freight rates are expected to continue their overall weak trend into 2023, but the pace of decline will gradually slow after peaking in 1Q23.