The aviation industry is one of the sectors of the economy that has been most affected by the COVID-19 pandemic. To understand the challenges that this industry currently faces and to learn about their possible solutions, The KAIST Herald interviewed Professor Jong Chul Kim from the K-School. Having worked as the CEO of Jeju Air, he provided astute insights into airlines’ management and a possible path forward.

Please introduce yourself to our readers.

I am an engineer with a PhD in chemical engineering from Princeton University. My interest in new fields led me to work in a large corporate research institute in New York after my PhD and to get a master’s degree in business administration.

I noticed the ever growing and diversifying demand for management consulting in Korea in the mid-1990s and founded EON Group, Korea's first “native” consulting company in 1998. Around that time, I established a relationship with Jeju Air, which was founded in 2005, as an outside director.When Jeju Air’s survival became unclear right after the 2008 global financial crisis,  I participated directly as a CEO in 2009 to prepare a business normalization strategy; I was able to successfully normalize the company within a year. My experiences and strategies with Jeju Air is summarized in my book CEO That Walks the Desert.

After leaving Jeju Air in 2012, I worked as a consultant to support various startups. But since 2019, I have been working as a professor at KAIST K-School to share my various experiences and to prepare students for starting a business. 

How has COVID-19 affected the aviation industry? 

To compare a company to a human body, the brain is the business strategy and the body is the organization. Both are important, but they cannot operate without blood, which is the funds. Even companies that have been operating well for a long time can face cash-flow insolvency if the sources of funds suddenly fail.

The airline industry is currently bleeding out. Travel between regions is restricted, and without the revenue from flight tickets, there is no stable source of funding. Meanwhile, the fixed costs such as labor costs or aircraft leases keep piling up, which drains the cash reserves.In order to treat such an injury, you would first attempt to stop the blood, and then, depending on the situation, transfuse blood if required.

There was a decline in air transport earnings during the SARS and MERS outbreaks in the past as well. How is the current situation different, and how can the industry recover?

In cases of SARS and MERS, the two epidemics were both local rather than global. The degree of influence varied by location. The shock on one side could be compensated, to some extent, by the additional demand of other sectors. However, nowadays, travel bans are imposed everywhere around the globe. Demand for airlines plummeted except for the cargo sector. In this situation, a full recovery is hard to come by without a reliable vaccine. However, there are signs that let us expect eased quarantine standards by the end of this year, such as the easing travel restrictions between the United States and the United Kingdom or Hawaii's “resort bubble” program. If airlines can accustom their management to such changes, such as social distancing within the plane and stricter check-ins, the industry would slowly recover starting from next year. 

What do you think about the government’s current measures to support the aviation industry, such as providing transportation rights for affected routes, reductions in payment of airport facilities, or delays in payment?

Since securing cash is a matter of survival and the aviation industry is a key industry of the country, I think it is appropriate for the government to support it. However, from the government’s point of view securing transparency and objectivity comes first, so it would be hard to provide large-scale funding so readily. Although it’s better than nothing, those in need may not be satisfied with small-scale funding.

So rather, it would be better to identify the keystones of the industry using financial institutions. This process needs to be executed rapidly. Sometimes, it could even be necessary to use procedures such as receivership and bankruptcy. I think airlines should handle figuring out their strategies and management, while the government provides financial support and follow-up management from a financial standpoint.

Do you think the aviation industry can fully recover?

After COVID-19, when the industry is reorganized, airlines can change to fit the new normal, and I believe that they will become more competitive compared to the past.In particular, the consumer’s needs in air travel will change, and airlines that quickly identify them and reflect them in their strategies will gain a new competitive advantage.

There is no guarantee that we will be free from similar crises in the future. How can the aviation industry be better prepared for such risks? 

All industries are met with such concerns, but especially in capital-intensive industries such as aviation, where large-scale investments must be made on a regular basis, long-term strategies addressing various scenarios are important.  Uncertain factors such as epidemics, typhoons, volcanic eruptions, and terrorist attacks are considered, but this pandemic situation would have been difficult to imagine.

I think future strategies should contain more conservative strategy alternatives that include these variables. What is important now will be how actively decision makers, including the CEO, participate in this strategy-making process.