The author is an analyst for NH Investment & Securities. He can be reached at ys.jung@nhqv.com -- Ed.
International passenger traffic fell 11% m-m in September amid the ending of peak season effects. Cargo volume rose 4% m-m on higher demand for air freight. Intensifying fare competition (especially for short-haul routes) and rising costs (including for labor and fuel) continue to sap demand.
Need to control supply and reshape competitive landscape
In the domestic airline industry, concerns that profitability has peaked out continue amid a slow-paced transport volume recovery against rising costs and limited fare hikes. Consequently, downward pressure on valuations persists. On the cost side, the burden of rising fuel costs is likely to continue in 4Q23 due to oil price volatility, dollar appreciation, and a widening jet fuel-WTI spread. Labor costs have upped on increased traffic and higher wages.
For domestic airlines to rebound, we believe that they need to reshape the competitive landscape and reduce plans to introduce new aircraft. We view airline consolidation as being necessary in order to transform the competitive landscape. We also believe that LCCs need to refrain from aggressively introducing new aircraft in 2024.
September int’l passenger +208% y-y, -11% m-m, cargo +3.5% y-y
International passenger traffic at national airports in September totaled 5.95mn, up 208% y-y, but down 10.8% m-m, affected by the end of the peak holiday season. With the effects of the Chuseok holiday peak season being spread out over late September and October, holiday impact was insufficient to make up for the off-peak period of early/mid-September. International passenger traffic growth (m-m) by airline in September divided as: Korean Air -7%, Asiana Airlines -13%, Jeju Air -7%, Jin Air -16%, T-way -9%, and Air Busan -11%.
China routes showed a 55% recovery from the 2019 average. While the recovery continues, the pace of demand recovery has been slower than other routes because of limited supply growth to China in September. A gradual recovery is expected in October on both higher operations by domestic carriers and National Day holiday effects.
Cargo volume climbed 3.5% y-y to 235,485 tons. Cargo volume growth by airline (y-y) broke down as: Korean Air +0.3%, Asiana Air -1.9%. Container freight rates continue to decline on increased supply, but air freight rate decline (y-y) is slowing on both a rebound in demand for perishables and cargo categories such as semiconductors and rechargeable batteries amid continued supply constraints on long-haul routes.