Weakening won, political turmoil already weighing heavily on travel industry

Authorities conduct a search on Monday at the site of the Jeju Air crash at Muan International Airport in South Jeolla Province. (Yonhap)
Authorities conduct a search on Monday at the site of the Jeju Air crash at Muan International Airport in South Jeolla Province. (Yonhap)

Stock prices of aviation companies plummeted on Monday following a tragic Jeju Air plane crash that claimed 179 lives, piling on South Korea’s already fragile economy hit by ongoing political upheaval.

The stock price of Jeju Air on the nation’s main bourse, the Kospi, fell 15.7 percent at the opening to an intraday low of 6,920 won ($4.70). AK Holdings, one of the airline's major shareholders, saw a sharp drop of 12 percent to 9,650 won after the market opened. Jeju Air partially recovered to 7,500 won at the closing bell. On the other hand, AK Holdings fell slightly further to 9,640 won.

Most other low-cost carriers also saw declines in their stock prices. T’way Air, which spiked at market opening to 2,660 won, had fallen to 2,400 won at the end of trading for a decline of 3.2 percent. Jin Air dipped 2.8 percent to 9,620 won, while Air Busan climbed 3.1 percent to 2,300 won. Flag carrier Korean Air tumbled 3 percent to 22,600 won, while the nation’s No. 2 full-service carrier Asiana Airlines rose 2.2 percent to 10,400 won.

As for travel-related stocks, Hana Tour and Modetour each slumped 2.2 percent and 0.7 percent to 54,300 won and 9,700 won, respectively. In response to travelers’ reluctance to fly with Jeju Air, several travel agencies, including Hana Tour and Interpark Tour, announced they would waive cancellation and change fees for all Jeju Air tickets.

Industry watchers warn that the deadliest aviation disaster involving a Korean airline in 28 years is expected to further dampen investor sentiment toward airline and travel-related stocks, which some had hoped would see a year-end boost with the government’s efforts to revive the tourism industry, now hampered by political instability.

“(The Jeju Air crash) is the (worst) disaster in terms of casualties,” said Ji In-hae, an analyst at Shinhan Securities. “Also, given the prolonged political turmoil driving the won-dollar exchange rate higher, a drop in travel demand and investor sentiment towards travel stocks seems inevitable.”

Ahn Do-hyun, an analyst at Hana Securities, noted, “Looking back, when the Korean won was weak, the number of outbound travelers tended to decrease, or their growth rate slowed down. When the value of the won falls, airlines face negative impacts on costs as well as passenger demand.”

Following another incident on Monday involving a Jeju Air flight, which returned shortly after takeoff due to a malfunction in its landing gear -- one of the issues believed to have caused the deadly crash the previous day -- the Ministry of Land, Infrastructure and Transport, the primary authority overseeing aviation safety, signaled an in-depth inquiry into Jeju Air.

“We have dispatched three aviation safety inspectors to Jeju Air to conduct investigations, after which we will know more about the causes of these accidents,” said Joo Jong-wan, head of aviation policy at the Transport Ministry, during a press briefing at the Sejong government complex on Monday.

Questions were also raised about Jeju Air, the largest low-cost carrier in Korea, having a higher aircraft utilization rate than other airlines, which may have contributed to the accident.

Joo replied, “It is confirmed through statistics that Jeju Air has the highest utilization rate. Considering these serious aviation safety issues, the ministry plans to conduct rigorous monitoring of (the company’s) administration and operations as we work to manage the current crisis.”

During another briefing later in the day, the land ministry also vowed to investigate whether the airline has been operating its aircraft more frequently than usual. According to data from the Financial Supervisory Service, Jeju Air logged an average monthly aircraft operating time in the third quarter of 418 hours, the longest among the six domestic airlines, even surpassing Korean Air and Asiana Airlines.