Lee Hyo-sik is Finance Desk editor at The Korea Times. He manages finance-related stories on macroeconomics, banks, stocks, bonds, crypto etc. He is passionate about covering what's happening in Korea's financial industry and explaining it to both Korean and non-Korean readers. You can reach him at leehs@koreatimes.co.kr. Your insights and feedbacks are always appreciated.
Budget carriers flying high
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By Lee Hyo-sik
By Lee Hyo-sik
The country’s five budget carriers — Jeju Air, Jin Air, Air Busan, Eastar Jet and T’way Air — have been flying high in recent years as more and more price-conscious travelers take low-cost airlines on both domestic and international routes.
These airlines used to offer only domestic flights, but in the past few years, they have launched flights linking Korea with destinations in Japan, China and Southeast Asia, providing both inbound and outbound travelers with more choices.
By offering lower fares and differentiated services, budget carriers have wooed substantial numbers of customers away from the nation’s two flagship carriers — Korean Air and Asiana Airlines — and foreign airlines flying to and from Korea.
Reflecting this changing industrial landscape, Asiana Airlines announced a plan on April 9 to launch its second low-cost carrier (LCC) based in Seoul to get a bigger share in the rapidly growing LCC segment.
Korea’s second-largest flagship carrier also currently operates Air Busan in which it has a 46-percent stake. The remaining 54 percent are held by multiple companies based in the nation’s second-largest city of Busan.
Asiana plans to own 100-percent stake of the envisioned second budget carrier, which will likely fly between Gimpo International Airport in western Seoul and Jeju International Airport. The airline is also expected to fly to destinations in China, Japan and other neighboring countries from Incheon International Airport.
Korea’s booming low-cost carrier segment
The number of travelers flying with LCCs over the years has grown significantly at the expense of major carriers Korean Air and Asiana Airlines.
According to the Ministry of Land, Infrastructure and Transport, the five local budget carriers accounted for 48.2 percent of the 22.35 million domestic air travelers, or 10.78 million, in 2013.
This figure was up from 44.5 percent in 2012, 34.7 percent in 2010 and 9.7 percent in 2008. Over 50 percent of both Korean and non-Korean passengers on domestic routes are expected to fly with LCCs this year.
In addition, budget airlines have stolen large numbers of international passengers from flagship carriers and foreign airlines.
They have benefited from the surging number of Koreans traveling overseas, thanks to rising incomes and the introduction of the five-day workweek. The increasing number of foreign visitors from China and other Asian nations have also helped budget airlines grow significantly.
The ministry said the number of Korean and non-Korean travelers using the five LCCs reached 4.91 million in 2013, up sharply from 1.84 million in 2011. The figure accounted for 9.6 percent of the entire cross-border passenger traffic last year, and is widely projected to account for 10 percent of traffic in 2014.
Airline industry watchers say more travelers will take LCCs when going to Jeju Island or Busan from Seoul or vice versa, and more price-sensitive leisure travelers will also use budget airlines when heading abroad.
Jeju Air
Jeju Air, Korea’s largest budget carrier by revenue, currently operates 14 international routes to five Asian countries from airports at Incheon, Gimpo, Gimhae and Jeju. Destinations include Tokyo, Osaka, Hong Kong, Cebu, Bangkok and Guam.
The airline also runs four domestic routes linking Jeju Island with inland destinations. It operates 15 Boeing 737-800 aircrafts and plans to add two more jets to its fleet this year.
“We expect that our revenues will reach 530 billion won ($505 million) in 2014, up from 432.3 billion won in 2013,” Jeju Air managing director Yang Seong-jin said. “The operating profit will also increase to 25 billion won from 15.2 billion won as more people fly with us on both domestic and international routes on the back of the strong local currency and the rise in the number of holidays.”
The airline plans to launch a Daegu-Jeju route and a Daegu-Bangkok route in July, Yang said, and will further increase the number of international flights linking Korea with Bangkok, Guam and other popular holiday destinations.
“On top of Korean travelers going overseas, we would like to serve foreign tourists visiting Korea. We hired actor Lee Min-ho, who is extremely popular in China and Southeast Asia, as our corporate spokesman to attract more ‘hallyu’ fans,” the managing director said.
Jin Air
Jin Air, the low-cost unit of Korean Air, currently operates 12 international routes, including ones linking Incheon with Guam, Macao, Cebu and Hong Kong. Here at home, it flies between Gimpo and Jeju. The budget carrier runs a fleet of 11 Boeing 737-800 aircrafts.
“We will add two more Boeing 737-800 jets to our fleet this year to cope with the growing international travel demand,” Jin Air spokesman Park Jeong-hoon said.
“In 2014, we will fly to two or three new foreign destinations to better serve our customers, but it is too early to say exactly where we will be flying to,” he said.
Park said what Jin Air offers travelers on international routes is not much different from what of Korean Air and Asiana Airlines offer. “Jin Air and other budget airlines will soon serve most travelers flying between Korea and other Asian countries, while flagship carriers will largely cater to those going long distances, such as to Europe and America.”
Jin Air earned 283.3 billion won in revenue in 2013 and 7.1 billion won in operating profit.
Air Busan, Eastar Jet and T’way Air
Air Busan, the LCC based in Korea’s second-largest city, seeks to generate 350 billion won in revenue and 10 billion won in operating profit in 2014.
“We made 277.9 billion won in revenue and 5.1 billion won in operating profit last year. Our sales will increase by 28 percent this year from 2013 as we add four new Airbus 320 aircrafts to our fleet,” Air Busan spokeswoman Kwak Ji-yun said.
The company currently operates 12 Boeing 737 and Airbus 320 airplanes on three domestic routes and 11 international routes. Its foreign destinations include Fukuoka, Osaka, Taipei, Cebu and Qingdao.
“Air Busan has been strengthening its core as a low-cost carrier operating short-distance passenger flights since its foundation in 2007. We will launch more flights into cities in China and Southeast Asia and take all possible measures to boost profitability,” Kwak said.
Eastar Jet, which earned 254.2 billion won in revenue in 2013, operates a fleet of four Boeing 737-700 aircrafts, each with 149 seats and four Boeing 737-800 planes, each with 186 seats. It runs three domestic routes linking Jeju with Gimpo, Cheongju and Gunsan. The LCC flies to Hong Kong, Tokyo, Osaka and six other Asian destinations.
“We will continue our aggressive sales campaign this year to attract more Korean and non-Korean travelers,” Eastar Jet spokesman Kim Young-il said. “We will start a daily flight between Cheongju and Shanghai in July to serve people in Chungcheong Province who want to travel to the booming Chinese city. We plan to increase the size of our fleet from the current eight to 11 by the year’s end.”
T’way Air also plans to add one plane to its fleet of seven Boeing 737-888 aircrafts in 2014.
“The competition has become increasingly fierce in the low-cost carrier market. Rather than blindly increasing the size of the fleet, we would like to remain agile so that we can adapt more quickly to the rapidly changing business environment,” company spokesman Yang Hee-chan said. “We would like to generate 240 billion won in revenue this year, up from 167 billion won in 2013. Our net profit is also expected to increase to 10 billion won from 4 billion won.”
The budget carrier currently operates two domestic routes (Gimpo-Jeju and Daegu-Jeju) and six international routes linking Gimpo and Incheon with foreign destinations such as Bangkok, Fukuoka and Taipei.