End of Pandemic Revenge Spending…Airlines Engage in "Tearful Bargain Sales" to Fill Seats

Recently, the travel industry has been thrown into an emergency as online travel agencies (OTAs) and low-cost carriers (LCCs) are flooding the market with incredibly low-priced international air tickets. Air tickets, once in such high demand during the "revenge spending" boom that they were hard to get, are now appearing as ultra-special deals for 10,000 to 20,000 won, raising concerns that "everyone will perish." Analysts suggest that after the explosive increase in travel demand following the COVID-19 endemic, a rapid slowdown has forced airlines into a fierce price war to fill their empty seats.

Shocking Prices: "Real Deals," Not Just "Bait," Are Back 

On July 7, Trip.com shocked the market by selling one-way tickets from Seoul to major Japanese cities like Tokyo, Osaka, and Okinawa for just 17,000 won. Tickets to Qingdao, China, and Da Nang, Vietnam, were offered at the same price, and on the 9th, a Seoul-Jeju route ticket was unbelievably priced at 7,700 won. An official from a travel agency stated, "With recent sharp declines in load factors on major routes, airlines are conducting massive discounts to fill seats, even if it means drastically lowering prices."

This is not limited to Trip.com. Hana Tour held a "Mega Hot Deal" event for three days starting July 8, offering round-trip tickets to major Japanese cities for around 100,000 won, and Southeast Asian routes like Bohol in the Philippines or Nha Trang in Vietnam for around 200,000 won. US routes to Hawaii and LA were also released for 600,000-700,000 won, with up to 30-40% discounts available by utilizing coupon discounts, hotel package deals, and credit card benefits. Noluniverse (formerly Interpark Tour), in partnership with Jin Air, joined the competition by selling September round-trip direct flights from Incheon to Guam for the late 100,000 to early 200,000 won range.

LCCs are also actively running their own discount promotions. T'way Air is holding a special promotion offering up to 20% off international routes until July 13. Long-haul routes like Vancouver, Canada (one-way 260,000 won), Barcelona, Spain (360,000 won), and Saipan (110,000 won) were also released at extraordinary prices. Air Busan also launched a discount event with up to 98% off starting July 9, selling short-haul routes like Japan for under 100,000 won and medium-haul routes like Taiwan or Malaysia for around 100,000 won.

In the past, special airfare deals were often "bait products" with limited quantities or imminent departure dates. However, recent offers feature ample quantities and departure dates 2-3 months or more away, making them genuinely beneficial. This indicates that some airlines and travel agencies are selling seats at a loss, reflecting the severe crisis in the industry.

Complex Reasons for the Sharp Decline in Overseas Travel Demand 

The influx of ultra-low-priced air tickets is due to a decline in overseas travel demand caused by a combination of factors.

End of "Revenge Spending": After the COVID-19 pandemic, pent-up demand for overseas travel exploded, showing "revenge spending" patterns over the past one to two years. However, analysts widely believe that this special psychological boost is gradually fading, returning to normal demand levels. The rapid increase in the number of overseas departures has significantly slowed this year. In January of last year, the number of overseas departures was approximately 2.77 million, a 55.5% increase year-on-year. However, in January of this year, it reached 2.97 million, with the growth rate slowing to just 7.3%. This trend continued with 4.5% in February, 2.6% in March, and 1.8% in April.

Prolonged Economic Slowdown: The persistent high inflation and high interest rates have also significantly contributed to the weakening consumer sentiment. With rising prices for essential goods and increased loan interest burdens, household finances are tightening, leading to a clear trend of closing wallets for non-essential spending like overseas travel.

Sudden Setbacks and Safety Concerns: The state of emergency declared in the Philippines late last year and the news of a Jeju Air aircraft accident early this year fueled a vague sense of unease about overseas travel, impacting the slowdown in departure growth. Furthermore, a recent online buzz about a cartoonist's prediction of a major earthquake in Japan has directly hit demand for travel to Japan, the most frequently visited country by Koreans. Considering that Japan accounted for an overwhelming 30.1% of all Korean overseas departures last year, a reluctance to travel to Japan has significant ripple effects across the entire overseas travel market. While some who planned trips to Japan sought "alternative destinations" like China or Southeast Asia, a significant number are presumed to have canceled their trips altogether.

Increased Airline Supply: Airlines that suspended or reduced operations during the pandemic have resumed routes and launched many new ones post-endemic, leading to a significant increase in airline seat supply. Conversely, demand has slowed for the reasons mentioned above, resulting in an oversupply. This creates a situation where airlines are forced into price competition to maintain their seat occupancy rates.

Declining 'Yield' Triggers "Emergency Light" for Airline Performance 

The ultra-low-priced air ticket competition is expected to put severe pressure on the performance of travel agencies and airlines. In particular, LCCs like Jeju Air and T'way Air are estimated by the securities industry to have recorded tens of billions of won in operating losses in the second quarter, following similar losses in the first quarter. This is due to a rapid decline in "yield," which refers to the revenue generated per passenger per kilometer.

The deterioration of profitability in the aviation industry is not limited to LCCs. Major airlines are also feeling profit pressure, raising concerns that this could lead to a decline in air service quality in the long run. Some warn that if this price war continues, it could lead to restructuring or route reductions across the entire aviation industry.

The travel industry anticipates that this low-price competition will continue into the second half of the year and is striving to find new breakthroughs. Developing differentiated services or products beyond mere price competition is crucial at this point. In this chaotic market situation, all eyes are on how the aviation industry will overcome this crisis.