Jeju Air is at risk of losing significant cash in booking deposits as customers cancel their tickets, adding to the airline’s existing liquidity woes that were present even before the deadliest air crash in the country occurred on Sunday.
The carrier received around 206.6 billion won ($141 million) in deposits in the third quarter of 2024, according to its electronic disclosure in November. This is the largest amount among domestic low-cost carriers (LCCs) — proportionate to the market leader’s sales — and is 41.6 percent more than the 184.3 billion won held by T’way, the second-largest LCC.
The majority of an airline’s advance payments come from deposits customers pay when booking their tickets. These payments, which are considered contract liabilities before the airline provides the promised service, are later calculated as revenue after the service is fulfilled and can be used like cash by the company.
The airline reported that passengers had canceled 68,000 bookings, most of which were requested shortly after the crash occurred, from midnight on Sunday through 1 p.m. on Monday. The number of cancellations has been higher than usual following the accident, according to Song Kyung-hoon, head of Jeju Air’s business support division.
The airline will have to repay the deposits with the cash it has on hand, which will likely exacerbate its already struggling finances.
Jeju Air had 391.5 billion won in total assets, 181 billion won in cash or cash equivalents and 993.7 billion won in liabilities as of the third quarter. It had a working capital ratio — the liquidity ratio that measures a company’s ability to pay short-term obligations — of 0.39, far below the 1.2 rate that is generally considered healthy.
The company must repay 242.1 billion won in short-term loans borrowed from banks within a year, according to its third quarter report. While banks typically extend loan periods for firms experiencing major disasters, Jeju Air would still be expected to pay between 10 percent and 30 percent of the amount by the end of the repayment period.
The short-term borrowings from the banks account for a quarter of Jeju Air’s total liabilities. Any reduction in the banks’ loans could significantly affect the airline’s overall finances as well as its operations.
Jeju Air is currently processing cancellations for all passengers, following through on its promise to honor all requests to cancel tickets and waive penalty fees for tickets booked by Dec. 29.
Jeju Air finished at an all-time low of 7,500 won on Monday, the last day of trading for 2024. Its majority stakeholder, AK Holdings, closed at 9,640 won, the lowest in 16 years.
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