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Weakening market standing

1Q25 review: Inevitable impact from December accident

For 1Q25, Jeju Air reported weak standalone revenue of W365.1bn (-32.3% YoY), hurt by a sharp drop in passenger traffic following the Muan airport crash in Dec. 2024. Domestic and international RPKs fell 25.3% YoY and 23.6% YoY, respectively. Despite sizable capacity cuts (-18.6% YoY for domestic, -10.7% YoY for international), the decline in passenger traffic was steeper, resulting in a load factor decline of 8?9%p YoY.

Meanwhile, the company posted an operating loss (standalone) of W35.7bn (swinging to the red YoY), as weak load factor and traffic drove down yields (-22.3% YoY for domestic, -9.2% YoY for international). Meanwhile, lower oil prices and won appreciation helped reduce fuel costs (-16.5% YoY), and airport-related costs also declined (-17.1% YoY). However, these savings were not enough to avoid an operating loss. Increases in labor (+3% YoY) and lease (+1.5% YoY) costs continued.

Likely to recover from December accident, but challenges remain

For 2Q25, we look for an operating loss of W34bn (remaining in the red). However, we expect the company to swing to an operating profit of W54.9bn in 3Q25, recovering from the impact of the December accident. Its market share, which fell from 10.4% in Dec. 2024 to 8.5% in Jan. 2025, also appears to be stabilizing (8.8% in Apr. 2025).

That said, the company is unlikely to regain its status as the dominant LCC player anytime soon. With margin erosion continuing, there is a high likelihood that planned investments will be delayed. Moreover, the expected integration of the LCC subsidiaries of Korean Air and Asiana Airlines (Jin Air, Air Busan, and Air Seoul) should result in a powerful LCC rival. Given that Jeju Air has historically pursued organic growth through steady investments rather than M&As, there are growing concerns that it will struggle to maintain its once-solid leadership in the LCC segment over the long term.

Lower TP to W7,000; maintain Hold rating

We maintain our Hold rating on Jeju Air and lower our target price to W7,000 (from W10,500). Our target price is based on projected earnings in 2026 (by which time the impact of the Dec. 2024 accident should have partially subsided) and an EV/EBITDA of 3x (average of major Asian peers). While recent negative trends (i.e., declining fares, reduced passenger volume, and falling market share) should gradually stabilize, a full reversal in the downtrend will likely take time.