Thursday, September 19, 2019
‘Value Consumption’ Helps Boost Profits of Major Korean Airlines
Putting Satisfaction before Anything Else
‘Value Consumption’ Helps Boost Profits of Major Korean Airlines
  • By Jung Suk-yee
  • October 22, 2018, 09:47
Share articles

Korean travelers’ value-based consumption, which puts the subjective value of individuals and the level of satisfaction first, is changing the business strategy of Korean airlines.

A recent tendency among Korean tourists to prefer destinations that give them satisfaction regardless of distance and expenses is helping Korea’s major airlines cope with rising costs in an increasingly competitive market.

This tendency, called “value consumption,” is starkly different from the past trend of overseas tourists preferring cheap and close places. This new trend is benefiting domestic airlines which have been strengthening competitiveness in medium to long haul flights.

According to industry sources on Oct. 19, securities companies presented a rosy outlook for large airlines, which have been struggling with higher costs due to a spike in international oil prices.

Kiwoom Securities Co. suggested the projected operating profit of Korean Air Lines Co. in the third quarter at 388.1 billion won (US$342.69 million), a bit higher than the market consensus of 356.5 billion won (US$314.79 million). Daishin Securities Co. estimated the company’s operating profit at 361 billion won (US$318.76 million).

Daishin Securities also predicted that Asiana Airlines’ operating profit would meet the market consensus of 115.5 billion won (US$101.99 million).

While the domestic airline industry as a whole is currently suffering from a rise in international oil prices and exchange rates and an economic downturn, stock analysts offer a positive outlook for major airliners in the third quarter. This is because consumers tend to purchase premium seats that increase the profits of airlines, and demand for medium and long distance travel destinations, including Europe, is growing. Value consumption, which puts the subjective value of individuals and the level of satisfaction before anything else, is changing the travel pattern and the business strategy of airlines.

An airline industry official said, “Major airliners are primarily focusing on passengers on medium and long haul international routes. An increase in demand for long haul flights, mostly to Europe, and the recovery of flights to China are improving the performance of large airlines.” In fact, Koreans searched for business class flights 52 percent more this year than last year, according to the data from Skyscanner, a leading global travel search and comparison engine.

According to the Korea Civil Aviation Association (KCA), the number of flights to Europe in August increased 18.4 percent compared to the previous month. The industry said that the number of flights to the Americas decreased 4.1 percent but this was due to measures taken by airliners to improve efficiency, such as rearrangement of flight routes, not because of a decrease in demand for main flight routes. Korean Air discontinued the flights to Houston this year because of its partnership with Delta Air Lines Inc. and decreased the number of flights to San Francisco in the third quarter. However, the number of its passengers rose compared to the last year. Asiana Airlines also increased the number of flights to Barcelona to 35 this year from 1 last year, to respond to a rapid growth of passengers.

However, the industry is concerned that consumers’ value consumption can have a positive effect more on foreign airlines than the domestic ones. An industry official said, “The share of foreign airliners in the international flight market has now reached 40 percent.”