The check-in counters of Hansung Airlines are closed at Cheongju Airport, Cheongju, North Chungcheong Province, Saturday, as the low cost carrier suspended operations due to financial difficulties. / Yonhap |
By Kim Rahn
Staff Reporter
High fuel prices and plummeting consumer demand are forcing budget airlines in Korea to carry through harsh restructuring, with one of them already closing down.
Hansung Airlines, the nation's first low cost carrier which started services in August 2005, suspended operations Saturday for an indefinite period.
The Cheongju-based carrier, which flew on the Seoul-Jeju and Cheongju-Jeju routes, said in a statement that it failed to raise funds due to soaring fuel prices, unfavorable currency rates and the global economic crisis.
``We've decided to suspend services. Operations under such circumstances might cause unsafe flights,'' the airline said.
Hansung failed to pay 990 million won ($800,000) in airport facility fees and salaries to employees for the last two months. It was in debt to the tune of 27.2 billion won up to June.
The airline will seek to resume operations through emergency measures including a merger with other budget carriers. However, experts are skeptical, noting other carriers have also been driven into a corner.
Despite increasing costs from higher fuel prices, airlines could not impose a fuel surcharge for domestic flights until recently in the absence of relevant rules. A weaker local currency also made it difficult for airlines to pay for aircraft leases in dollars. The Aviation Law, which allows international operations only for those having at least one year of domestic experience, also forced them to over-compete on the small domestic market.
Jeju Air, which started service in June 2006, recorded a cumulative loss of 39.8 billion won up to June this year, while Yeongnam Air, established in July, is filling only 40 percent of its seats on average.
Jin Air, Korean Air's budget affiliate that started service in July, is in a better financial situation, not due to strong business but on backing from its parent company. Its average boarding rate remains around 50 percent. At the same time, fiercer competition lies ahead with the launch of Air Busan, an affiliate of Korean Air's rival Asiana Airlines, at the end of this month.
Kostar Airlines, Eastar Jet and Incheon-Tiger Airways also plan to begin services next year.
``If the current situation continues, more budget carriers will fail. It is not only a matter of financial stability but also the one involving economies of scale. The domestic market is too small for airlines to achieve a certain level,'' said Hong Seock-jin, a professor at the University of Incheon's Graduate School of Logistics.
``Such a rise and fall, however, is not always negative for the market. It will help make strong and competitive airlines that can survive and improve. Those with a reformatory mindset will survive,'' Hong said.
rahnita@koreatimes.co.kr
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yistory@koreatimes.co.kr
