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Strong international demand gives South Korean airlines a good platform for next phase of growth

Analysis

South Korea's international passenger traffic has almost recovered to pre-pandemic levels and exceeds them in some key markets, while there are also promising signs in sectors that have been lagging.

The rate of the country's capacity growth slowed in the first half of this year, as most aircraft were returned to service and the majority of routes resumed. Unsurprisingly, the main markets that have yet to fully recover are between South Korea and China and Japan.

As with many other Asia-Pacific airlines, South Korean airlines are seeing increasing competition and rising costs. This spurred a more cautious approach to growth, which has helped boost international load factors to higher levels.

Weakness in Japan and China demand has been partially offset by surging demand on flights to places such as the US and Western Europe.

Looking ahead, there appears to be growing confidence in the China market. Korean Air has revealed plans to resume more routes in its China network, significantly lifting its capacity there.

This indicates that demand is rising enough to warrant more services. It is also adding more Japanese flights, although to a lesser extent than in China.

Meanwhile, some of South Korea's secondary airlines are also eyeing growth prospects, boosted by the likelihood of gaining valuable routes given up by Korean Air in order to win approval for its Asiana takeover.

Summary
  • South Korea’s international passenger numbers passed 95% of their 2019 levels in May-2024 – up 170% year-on-year.
  • International load factor for local airlines reached 83.6% in May-2024 - 4.7 points higher than in 2019.
  • Inbound visitor numbers from China are at 83.4%, and Japanese visitors are at just 56%.
  • Korean Air plans to resume five routes to mainland China and one to Japan, along with frequency growth.
  • These moves will lift the airline’s weekly flights to mainland China by 33%, reaching 89% of their 2019 levels.

International passenger numbers are nearly at 2019 levels, although some markets are stronger than others

South Korea's monthly international passenger numbers reached 95.3% of 2019 levels in May-2024, according to data from CAPA - Centre for Aviation and South Korea's Ministry of Land, Infrastructure and Transport (MOLIT). This represented the fourth consecutive month where the recovery rate was over 93%.

The May-2024 international passenger total was also up by nearly 170% versus the same month in 2023. The year-on-year comparisons will likely narrow later in 2024, since South Korea's international traffic began climbing rapidly from the middle of 2023.

South Korea's monthly international traffic, as measured in passenger numbers, 2019-2024

South Korea's visitor numbers have also recovered strongly, although not quite to the same degree as overall international passenger levels. This may indicate that outbound international demand has been slightly stronger than inbound.

Inbound visitor numbers have risen significantly in the early months of 2024, data from CAPA - Centre for Aviation and the Korean Tourism Organization shows. Monthly totals in Mar-2024 and Apr-2024 were at their highest point since the COVID-19 pandemic began.

Overall visitor numbers were at 89.2% of 2019 levels in Apr-2024. The percentage was much lower in Mar-2024, but was in the 80-85% range in Jan-2024 and Feb-2024.

South Korea's monthly visitor arrivals, 2019-2024

Some markets were weaker than the overall average.

For example, visitors from China were at 83.4% of 2019 levels in Apr-2024, and those from Japan at just 56%. This is not a surprise, as outbound flows from these countries have generally been slower to recover for most Asia-Pacific markets.

South Korea's visitor arrivals from some Southeast Asian countries, such as Malaysia, Philippines, Vietnam and Thailand, also lag the overall average.

However, on the other side of the coin, visitors to South Korea from several markets are soaring. For example, US visitors were up by nearly 20% compared to 2019 levels in Apr-2024. Australia, India, Singapore and Indonesia are also in this category.

One notable trend is that visitor numbers from Western European countries, such as the UK, Germany and France, are much higher than in 2019. This is despite the fact that avoiding Russian airspace has made flight times between South Korea and these countries longer.

The two major South Korean airlines are at about 80% capacity, but the growth rate has eased

The rebound in international demand has enabled capacity and network recoveries for South Korean airlines. Korean Air is now operating 81.6% of its pre-pandemic international capacity, with Asiana at 79%.

Korean Air's rate of capacity growth slowed in the first half of this year. On 8-May-2024 the airline said it would increase its focus on route profitability in the second quarter, against a backdrop of rising competition.

Korean Air: international capacity, as measured in weekly seats, 2019-2024

Slower capacity growth, coupled with higher traffic, lifted the international load factor for South Korean airlines to 83.6% in May-2024, according to MOLIT data.

This is 4.7 points higher than the same month in 2019.

International passenger load factors for South Korea-based airlines, 2019-2024

Korean Air is preparing to resume more routes to China and Japan

Growth may be about to pick up again due to improving demand, however. Korean Air signalled on 20-Jun-2024 that it would significantly increase its mainland China network in the second half of 2024, with more routes resumed and frequencies added.

The airline announced that it would resume five routes to China - one each month through Oct-2024 - and increase frequencies on others, moving Korean Air closer towards the full restoration of its flight capacity in the mainland China market.

The route resumptions will increase Korean Air's weekly flights on mainland China routes by 33% compared to current levels, the airline told Aviation Week Network. This will restore its weekly flights in the China market to 89% of pre-pandemic levels.

Bringing back more routes will also increase the number of mainland China destinations served by Korean Air to 88% of 2019 levels.

Korean Air will also boost its Japanese services. It aims to resume its Jeju-Tokyo route with three weekly flights between 19-Jul-2024 and 25-Oct-2024, and will increase frequencies on two more Japanese routes from Seoul.

These steps will increase its weekly flights in the Japan market by 2% from the current total, meaning weekly flights will be 4% above pre-pandemic levels.

The number of Japanese destinations served by Korean Air reached 100% of pre-pandemic levels in Jan-2024.

A stronger demand environment is also supporting growth plans and relaunches for other airlines

The post-pandemic demand rebound has helped smaller airlines too.

The LCC T'Way is operating more international capacity than in 2019, and it is expected to see a further increase, thanks to new European routes it plans to launch.

These result from competition remedies related to the Korean Air-Asiana merger, which will likely also yield new US routes for Air Premia.

The promising demand outlook probably helped the grounded airline Fly Gangwon gain new investors. The South Korean company Winix has been selected as the preferred bidder, and has ambitious plans to relaunch the airline and expand its network.

Robust demand has helped strengthen load factors; will underpin final stages of network recovery

A slower capacity growth rate in the first half of 2024 appears to have allowed South Korean airlines to solidify their network recovery in its post-pandemic phase. This has helped it lift load factors, even though competitive capacity from outside the country has been rising.

The boom in markets such as South Korea-US has also helped, and has lifted overall capacity.

Korean Air's ramp-up in mainland China services in the second half of the year is very significant, given the importance of this market to the airline. It also provides a good illustration of the increasing confidence in the Chinese international market by Asia-Pacific airlines.

There are still factors holding back outbound demand in the Chinese and Japanese markets. However, Korean Air's move is a welcome sign that it sees potential for further recovery there.

This article was written on 24-Jun-2024.

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