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Jeju Air sees record third-quarter profit, says China again blocked charter flights
August 21, 2017 / 11:13 PM / a month ago

Jeju Air sees record third-quarter profit, says China again blocked charter flights

The logo of Jeju Air is seen at its office near Gimpo Airport in Seoul, South Korea, August 21, 2017. REUTERS/Kim Hong-Ji

SEOUL (Reuters) - Jeju Air Co Ltd (089590.KS) expects record quarterly profit in July-September, as changing lifestyles at home in South Korea translates into demand that more than makes up for China again rejecting its monthly application to provide charter flights.

South Korea’s biggest low-cost carrier (LCC) by market share is benefiting as more Koreans travel overseas spurred by lower fares, and increasingly spend on small luxuries in a departure from a past focus on savings, Chief Financial Officer Kim Tae-yoon told Reuters.

But the airline, like its peers, is still hamstrung in China, where authorities declined Jeju’s request to offer charter flights in August to and from the country - the latest in a series of rejections stretching back to January.

The initial rejections came after Seoul’s decision to deploy a U.S. missile defence system to counter any potential threat from North Korea. Beijing objected that the system’s radar was capable of penetrating Chinese territory.

Ensuing anti-Korean sentiment involved protests and boycotts of Korean goods and services. Chinese tour groups to South Korea were also halted, as were charter flights.

“There are no signs that China will approve the resumption of charter flights,” Kim said in an interview. “Nevertheless, we are preparing to resume flights whenever they are approved.”

Jeju generated only a small portion of revenue from Chinese charter flights. It has since redeployed aircraft to Japan and Southeast Asia and, in April-June, saw operating profit jump 24-fold to 16.2 billion won ($14.23 million).

RESTRUCTURING

Jeju operates 29 Boeing Co (BA.N) 737-800s. It plans to expand its fleet to 33 by year-end and add six to eight aircraft each year to reach 50 in 2020, Kim said, with all planes being 737-800s to achieve economies of scale and help keep costs low.

He said Jeju’s expansion will accelerate consolidation in South Korea’s low-cost carrier sector, which he expects to reach saturation point after two or three years.

“I think there are too many LCCs in South Korea,” he said.

South Korean has six low-cost carriers and two firms aiming to begin flights early next year. Kim expects the sector to eventually settle with two or three carriers.

“Now, everyone is holding up well, but when the market deteriorates, only airlines with cost-competitiveness like us will survive,” he said.

One of Jeju’s competitors is Jin Air, affiliate of the country’s biggest carrier, Korean Air Lines Co Ltd (003490.KS). Jin Air plans to list on the stock market and use listing proceeds to fund investment for growth, such as buying aircraft.

Reporting by Hyunjoo Jin; Editing by Christopher Cushing

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