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South Korea's Eastar Jet asks cabin crew to take unpaid leaves amid mounting losses

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SEOUL (Reuters) – South Korea’s Eastar Jet has asked cabin crew members to take unpaid leaves as the budget carrier unveiled an emergency cost-cutting plan to help it keep flying amid mounting losses.

Local airlines, including top carrier Korean Air Lines Co Ltd <003490.KS> and biggest budget airline Jeju Air Co Ltd <089590.KS>, swung to losses in the second quarter due to weak travel demand and suspension of a series of flights between South Korea and Japan amid a worsening diplomatic and economic spat.

Eastar Jet has amassed tens of billions of won in losses and is facing its “biggest crisis” since it came into existence due to internal and external environment, a company spokesman quoted Chief Executive Officer Choi Jong-gu as saying in an internal memo on the website.

The country’s fourth-biggest budget airline asked cabin crew staff to take up to four weeks of unpaid leaves in the second half of the year to help it withstand the downturn in passenger business.

The company took down the memo from its website due to growing concerns among employees, the spokesperson said.

“The scheme is a measure to drill down on costs as we are facing challenges caused by a weaker local currency and declining travel demand to Japan,” said the spokesperson.

Flights to Japan accounted for 46% of the company’s international routes in 2018, according to the transport ministry. The won has weakened over 6% this year and is among the worst performing Asian currencies.

“We will also skimp on unnecessary corporate gatherings,” the spokesperson added.

Eastar Jet currently operates 22 aircraft, including two grounded Boeing <BA.N> 737 MAX 8 that has been involved in two deadly crashes since October 2017 that killed 346 people.

A spike in crude oil prices following attacks on Saudi oil facilities on Saturday adds to the cost burden of carriers, said analysts.

“Rising oil price is never good news for airlines,” said Um Kyung-a, an analyst at Shinyoung Securities, adding that increased oil prices might lead to higher air fares and in turn shrink travel demand further.

(Reporting by Heekyong Yang; Editing by Subhranshu Sahu)

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