 "Jeju Air's problems mount after plane crash that killed 179 people")
By Daisuke Wakabayashi
When Jeju Air’s status as South Korea’s biggest low-cost carrier seemed under threat from the merger of the country’s two biggest airlines last year, the company’s chief executive assured employees that it would “actively respond,” possibly by acquiring smaller rivals. Now, a week after a crash that killed 179 people on December 29, Jeju Air’s future is clouded by even deeper questions.
South Korean officials on Thursday raided the company’s offices and imposed a travel ban on Kim E-bae, the chief executive, as part of the investigation into the country’s worst air disaster in almost three decades. Passengers are cancelling bookings, adding further strain to a balance sheet heavy with debt. And Jeju Air’s stock price, already trading near record lows, has fallen 10 per cent since the disaster.
Earlier in the week, Kim said that Jeju Air would cut 15 per cent of its flights until March to “enhance operational stability.”
As investigators look into what caused Jeju Air Flight 7C2216 to crash, the airline has come under intense government and public scrutiny for how it operates. Some of its operational practices are being challenged, including how it flew its planes more frequently than competitors and how it outsourced its maintenance overseas.
Jeju Air’s business outlook was already uncertain. The crash came after the completion of Korean Air’s acquisition of a majority stake in Asiana Airlines last month. The merger — a $1.05 billion deal agreed upon four years ago — will eventually create a single national carrier. As part of that deal, three budget carriers operated by the two companies will be brought under one brand that will surpass Jeju Air as South Korea’s largest low-cost offering.
Two decades ago, Jeju Air became the country’s first upstart budget airline with the aim of challenging the duopoly of Korean Air and Asiana. Jeju Air would fly the busy tourist route between Seoul and Jeju, a scenic island off the southern coast of South Korea. The airline is majority-owned by AK Holdings, a conglomerate best known for selling laundry detergent and toothpaste. Jeju Air’s second biggest shareholder is Jeju’s provincial government.
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Jeju Air emerged from a jumble of other small airlines to become the country’s leading low-cost carrier. Like many budget airlines, Jeju kept a tight rein on costs, put new technology in place and squeezed travellers for even small perks. It focused on short regional flights served by the same model of airplane, the single-aisle Boeing 737-800.
After an initial public offering in 2015, Jeju Air was on fairly stable financial footing until the pandemic struck. Since 2020, it has been forced to raise capital on three separate occasions, totaling nearly $500 million. It also received a government loan of $29 million on the condition that it maintain 90 per cent of its work force.
Even after travel restrictions were lifted and Jeju Air was awash in pent-up demand, its debt problems persisted because its costs were going up just as fast as its revenue.
South Korea seeks extension of arrest warrant for Yoon
South Korea’s corruption watchdog filed for an extension of a warrant to arrest President Yoon Suk Yeol after their first attempt last week ended in failure following an hours-long standoff with his security team.
The Corruption Investigation Office for High-ranking Officials also asked the police to handle the arrest on their behalf following the failure.
But police effectively rejected the request, saying there could be legal issues for them to execute a warrant obtained by the CIO. The application for the extension suggests a move to carry out the arrest may not happen until later in the week.
Meanwhile, US Secretary of State Antony Blinken expressed confidence in South Korea’s acting leader as the two nations reaffirmed their security alliance and combat readiness against North Korea at a time when Seoul is struggling to restore political stability.