Fly Gangwon fails to pay salaries again due to financial woes

Fly Gangwon, a low-cost carrier based at Yangyang International Airport in Gangwon Province, South Korea, is in serious financial trouble. As its financial situation deteriorated rapidly, international flights to Taiwan and others were canceled and salaries to its employees were delayed for a month.

According to industry sources on Thursday, Fly Gangwon canceled several flights between Yangyang and Taipei, which had been scheduled to operate in December last year and January this year. It decided to pay compensation of 250,000 won ($196) a person to passengers who booked the flight.

The decision was made in response to tighter flight schedules due to the recent cuts in the number of flights. The company gave one Boeing aircraft (737-800) back to the leasing company on Dec. 27 last year. The company explained that it was a strategic decision made due to the growing burden of lease payments.

After the introduction of Airbus' mid- to-large aircraft 330-200 in November last year, Fly Gangwon's financial soundness got worse abruptly. Last year’s annual sales were about 35 billion won ($27.6 million), a significant improvement compared to those in 2021 (about 7.5 billion won), but the increase in fixed costs caused by introducing a new aircraft was steeper.

Due to this factor, the salary payments for November last year were also delayed. Fly Gangwon had been in arrears of salaries for two months in 2020. "Our financial difficulty is temporary. We plan to normalize the salary situation within this month," said a company official.

Analysts say that this is the result of excessive investment while facing an operating loss. Fly Gangwon has been in the red every year since it started operating after securing an air operator certificate (AOC) from the Ministry of Land, Infrastructure and Transport in 2019. The cumulative operating loss from January to September last year was about 21.4 billion won.

According to the Aviation Business Act, international airline operators must secure five or more aircraft within three years from the date of beginning operations. If the airline fails to introduce two additional aircraft by March this year, the AOC being canceled is also a possibility.

Write to Seo-Woo Jang at suwu@hankyung.com