[비즈한국] The travel and aviation industries, which were finally beginning to stretch after emerging from the long tunnel of COVID-19, are facing another harsh reality. Amid the protracted war between the U.S. and Iran, 'high oil prices' and 'geopolitical risks' are weighing heavily on the industry. The aviation sector faces a crisis as jet fuel prices hit record highs every day, while the travel industry is quiet as the number of customers traveling abroad dwindles. Some are even complaining, saying, "With foreign capital entering the market and intensifying competition, these compounding negative factors make it harder than during the COVID era."
Direct Hit from High Exchange and Oil Prices
Travel agencies have been hit directly by high exchange rates and high oil prices. Mid-sized travel agency Kyowon Tour has ultimately pulled the card of a four-day work week and entered emergency management mode. Starting today (May 11) through the end of next month (June 30), Kyowon Tour has implemented a four-day work week on an unpaid basis for all employees. This is a response to the rise in fuel surcharges caused by soaring jet fuel prices.
In fact, the travel industry says this was somewhat expected. Since April, the atmosphere was already akin to a business closure as exchange rates rose daily. Although products departing in early May were less affected because demand for tickets purchased before the oil price surge was concentrated until the end of March, bookings for products departing after late May—which are usually sold starting in early April—have significantly dropped.
A travel industry official hinted, "Normally, from May to the peak season in August and September is the most important period for travel companies," adding, "They will try to hold out somehow because of the summer vacation season, but since the aviation industry is also struggling with high oil prices, there is talk that the summer vacation season will be the breaking point for financially weak travel agencies."
Aviation Industry Already Implementing Unpaid Leave
The aviation industry was already implementing unpaid leave. Jeju Air, the top domestic LCC 089590, decided to carry out unpaid leave for the month of June for cabin crew volunteers, and T'way Air 091810 also began accepting applications for two months of unpaid leave for May and June starting last month.
Flight routes are also being reduced. The total scale of confirmed flight reductions to date reaches approximately 900 round-trip flights. Jeju Air reduced 187 flights for May and June, accounting for 4% of its total international operations, while Jin Air 272450 has cut 176 flights through this month, centered on routes like Phu Quoc and Guam. In addition, LCCs such as Air Busan 298690 (212 flights), Eastar Jet (150 flights), Air Premia (73 flights), and Air Seoul (51 flights) are trying to weather the 'crisis' by reducing their flight frequency.
Asiana Airlines has also reduced 27 round-trip flights across 6 routes, including Phnom Penh and Istanbul, through July following the Middle East war. Korean Air 003490 has not yet joined this move, but is closely monitoring the situation under its emergency management system.
This is because jet fuel prices have surged more than 2.5 times since the Iran war. The average price of Singapore jet fuel, which serves as the benchmark for calculating May fuel surcharges, was recorded at 511.21 cents per gallon ($214.71 per barrel) from March 16 to April 15. This is a 150.1% increase from the average price of 204.40 cents per gallon ($85.85 per barrel) two months ago.
The problem is that this oil price acts as a direct hit to airline management. Korean Air's estimated annual fuel consumption is 30.5 million barrels, and every $1 change in oil prices results in a fluctuation of approximately $30.5 million in profit and loss. Of course, airlines pass this cost on to customers. However, the reduction in airline operations ultimately leads to a deterioration in the performance of travel agencies.
Another travel industry official lamented, "The travel industry is currently in a situation as serious as the COVID era," adding, "Back then, there was government support or employment retention subsidies, but now, with competition intensifying due to the entry of Chinese companies, and the overlap of high interest rates, high inflation, and sluggish domestic demand, it is tougher than ever."