Jeju Air seeks M&A, igniting race for top place in Korea's LCC market

Jeju Air Co., a leading South Korean low-cost carrier (LCC), will likely seek the acquisition and merger of a rival small airline operator amid intensifying competition to rise to the top in the domestic budget carrier market.

According to industry sources on Friday, Jeju Air Chief Executive Kim E-bae recently sent an email to company executives and employees that raised the possibility of the company acquiring an LCC owned by private equity firms (PEFs).

“Airlines owned by PEFs will eventually be subject to sale. If an M&A opportunity arises, we will actively respond,” he wrote in the email.

An aviation industry official said, "Given the nature of the aviation industry where efficiency increases as size increases, Jeju Air will be tempted to seize an M&A opportunity as it comes up.”

He said Aekyung Group, which owns Jeju Air, seems to be increasing its investment in the promising LCC business. AK Holdings Inc., the holding company of Aekyung Group, has a majority stake in Jeju Air.

AIR PREMIA, EASTAR JET, AIR INCHEON

In Korea’s LCC industry, three companies are owned by PEF. They are Air Premia Inc., Eastar Jet Co. and Air Incheon Co.

Air Premia’s two largest shareholders are Seoul-based PEFs – AP Holdings and JC Partners, which own 43.6% and 22% of the budget carrier, respectively.

Tirebank Co. Chairman Kim Jeong-gyu and former Leisure Q Chief Executive Moon Bo-guk set up AP Holdings. Tirebank is a domestic tire retailer, and Leisure Q is a travel startup.

Kim and Moon are also known to have stakes in JC Partners.

“Air Premia operates long-distance routes, including the US route while Jeju Air mainly operates short-distance routes. A combination of the two would create synergy,” said an industry official.

Eastar Jet, which also operates short-distance routes, is owned by VIG Partners, which purchased a 100% stake in the carrier for 140 billion won ($102 million) in June last year.

Industry officials said VIG Partners may put Eastar Jet up for sale to secure funds to invest somewhere else since the PEF failed to receive funding from large investors such as the National Pension Service (NPS) in the past couple of years.

Air Incheon, established in 2012, is a freight carrier focused on cargo transport. It is 80% owned by Seoul-based Socius Private Equity.

Air Incheon acquired Asiana Airlines’ cargo business unit in June for about 500 billion won.

Analysts said the chances of Jeju Air taking over Air Incheon are low as the former has vowed to focus on passenger transport as a budget carrier.

THREE-WAY BATTLE FOR TOP

Jeju Air, which has largely maintained its LCC market leadership for nearly two decades since its launch in 2005, faces growing competition from its crosstown rivals.

One dominant competitor is an alliance of Korean Air Lines Co.’s affiliate Jin Air Co. and Asiana Airlines’ two units – Air Busan Co. and Air Seoul Co.

The three LCCs are expected to be merged once their parents – Korean Air and Aisana – complete their own merger.

The two full-service carriers are expected to complete their proposed merger by the end of this year after clearing all legal hurdles set by global aviation regulators.

The combination of three budget carriers – Jin Air, Air Busan and Air Seoul – will have a fleet of 58 aircraft, creating 2.48 trillion won in annual sales.

This compares with Jeju Air’s fleet of 42 aircraft and annual sales of 1.72 trillion won.

T’WAY, ANOTHER RIVAL

T’way Air Co. is another strong rival striving to rise to the top place in Korea’s LCC market.

As part of the conditions set by aviation regulators for its merger with Asiana, Korean Air handed over four profitable European routes, including the Seoul Incheon-Paris route, to T’way Air.

T’way is also preparing to take on a  North American route.

With the addition of more overseas long-haul routes, T’way’s sales are expected to rise to 1.8 trillion won next year from 1.35 trillion won in 2023.

Earlier this month, Korea’s top resort operator Sono International Co. acquired a 14.9% stake in T’way from JKL Partners with an option to buy an additional 10% stake from the Seoul-based PEF by the end of September.

T’way’s largest shareholders are Tway Holdings Inc. and its top stockholder YeaRimDang Publishing Co. Together they have a 29.74% stake.

Write to Jae-Fu Kim and Jun-Ho Cha at hu@hankyung.com

In-Soo Nam edited this article.