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(Yonhap Interview) Jeju Air on track to achieve 20 pct sales growth in 2018: CFO

2018/07/13 16:58

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By Choi Kyong-ae

SEOUL, July 13 (Yonhap) -- Jeju Air Co., South Korea's biggest low-cost carrier by sales, is on track to achieve a 20 percent on-year sales growth this year on a strengthened fleet and profitable routes, the company's chief financial officer said Friday.

Jeju Air is set to achieve sales of over 1 trillion won (US$890 million) in 2018 as it already posted 996.36 billion won in sales in 2017, Jeju Air Chief Financial Officer Kim Tae-yoon said in an interview with Yonhap News Agency.

"We are on the path to achieve a sales goal of 1.5 trillion won and provide service on 60 routes by 2020. The shortened 52-hour workweek and a growing appetite for work-life balance will further stimulate travel demand on budget flights in the long term," he said.

In this photo taken on July 13, 2018, Jeju Air CFO Kim Tae-yoon talks about the budget carrier's business plans and performance during an interview with Yonhap News at its headquarters in Gimpo, western Seoul. (Yonhap) In this photo taken on July 13, 2018, Jeju Air CFO Kim Tae-yoon talks about the budget carrier's business plans and performance during an interview with Yonhap News at its headquarters in Gimpo, western Seoul. (Yonhap)

To better serve its customers, Jeju Air said it will expand its fleet to 39 B737-800NG planes by the end of this year from the current 34. Three of the five B737-800NGs to be added will be purchased by the company.

"The first plane we purchased will be delivered later this month. The (three) new planes will be more cost-effective and will be welcomed by our customers," the executive said.

Jeju Air has intentionally operated one type of aircraft, the 189-seat B737-800NG, to take advantage of economy of scale and reduce costs. The plan has worked, helping the company cut the fleet's maintenance and repair costs.

"For next year, we are planning to introduce the B737-MAX plane to serve on (mid-haul) routes to countries such as Singapore and Malaysia," the CFO said, adding that the company is not considering services on long-haul routes to places such as the United States and Europe.

As there is 80 percent commonality between the B737-MAX and the B737-800NG, the company does not expect any sharp increase in maintenance-related expenses.

With the B737-800NGs, Jeju Air mainly flies short-haul routes to Jeju Island, Japan, China, Hong Kong and Macao, with the number of routes it serves set to reach 55 by December. The company earns 80 percent of its sales from the international routes business and the remaining 20 percent from its domestic services.

To bolster profitability, Jeju Air plans to increase flights on short-haul international routes for the time being and advance to a new business, Kim said.

Jeju Air has partnered with Holiday Inn Hotels to launch its hotel business in August to seek a synergy effect with the mainstay passenger-carrying services. It currently has 380 billion won worth of cash and cash equivalents.

"We are opening a 'budget hotel' which simply offers breakfast services under the brand name of Holiday Inn Express next month near Hongik University (the pinnacle of youth culture in Seoul) to attract Jeju Air customers and others," said Kim.

"If the budget hotel, which costs less than 100,000 won ($89) a night, is well received among travelers who seek cost effectiveness in accommodations, the company will consider expanding the hotel business as a new growth driver."

   As for opportunities and challenges ahead, the CFO said if Korea has open skies with mainland China as it does with Japan and other Asian markets, Korean budget carriers will gain significant opportunities in China.

Even if new entrants are expected to join the budget carrier market in coming years, Jeju Air said it doesn't care much about domestic rivals. It is looking to ways to compete with Asian rivals such as AirAsia.

"We are stepping up efforts to strengthen localized services in our major Asian markets to woo customers by building up local sales networks and selling airline tickets through local travel agencies," the 46-year-old executive said.

The country's six budget carriers, including Jin Air Co., Air Busan Co., Air Seoul Inc., Eastar Jet and T'way Air, transported 56.9 percent of all passengers on domestic routes in 2017, up from 56.8 percent a year earlier. The ratio of the six carriers on international routes jumped to 26.4 percent from 19.6 percent during the same period, the company said.

Jeju Air is 59.59 percent owned by Aekyung Group, a cosmetics-to-health care conglomerate. Jin Air belongs to full-service carrier Korean Air Lines Co., and Air Busan and Air Seoul are part of another full-service carrier, Asiana Airlines.

In the January-June period, Jeju Air will post "better" earnings results compared to the same period a year ago when it posted a 93 percent on-year jump in net profits, he said without elaborating.

In the first half last year, net profits soared to 32.3 billion won from 16.6 billion won a year earlier. Operating profits also jumped to 43.4 billion won from 16.2 billion won during the cited period. Sales rose 40 percent to 468.2 billion won from 335.3 billion won.

Jeju Air's B737-800NG (Yonhap) Jeju Air's B737-800NG (Yonhap)

kyongae.choi@yna.co.kr

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