LCCs face fiercer competition in 2016

Competition among the nation's low-cost carriers is expected to further intensify this year because airlines are buying more planes and expanding their air routes in order to attract more travelers from full-service carriers.
/ Korea Times file

By Chung Ah-young

Low-cost carriers (LCCs) here are expected to compete more fiercely than ever this year as they are buying more planes and expanding their routes to attract more travelers from full-service carriers.

Also, Air Seoul, a newcomer, affiliated with Asiana Airlines, the nation's second largest carrier, plans to launch operation this year as it has recently obtained a license from the government.

The budget carriers have exponentially grown over the last 10 years, threatening the positions of the nation's premium carriers ― Korean Air and Asiana Airlines.

With lower fares, no-frills airlines make profits for charging fees on food or beverages by reducing conventional services. In Korea, Jeju Air was established as the first low-cost carrier in 2005.

T'way Air

According to the Ministry of Land, Transportation and Infrastructure, the number of international passengers rose by 13.7 percent to 5.22 million year-on-year in November. Among these, the number of passengers for the premium carriers has increased by 10.3 percent while LCC's has surged by 54.6 percent.

The Korea Civil Aviation Development Association (KADA) said that the market share of the low cost rose to 14 percent in 2015, up from 0.05 percent in 2008.

"Due to their extended operations for the mid- and long-range routes which make airlines earn more profits, the lower burden for oil prices, the market share is expected to soar to 30 percent within five years," the KADA said.

Jeju Air

Air Seoul, newcomer

Asiana Airlines' second budget carrier will launch its operations in the second half of thes year.

The new carrier will join the current five budget airlines ― Jeju Air, Jin Air, Air Busan, Eastar Jet and T'way Air.

Asiana said that it will use the two budget carriers on a two-track strategy ― Air Seoul will be based at Incheon International Airport, west of Seoul, while Air Busan, its first budget carrier, is based in Busan.

Air Busan will continue to focus on domestic flights while Air Seoul will target middle and longer distance international routes.

To improve the company's structure, Asiana will gradually transfer 11 routes to Japan and Southeast Asia to Air Seoul and will stop flights to Vladivostok in February and Yangon and Bali in March.

Eastar Jet

The company said that the launch of the new carrier is part of business management normalization plan to sharpen its competitiveness along with its restructuring project.

Air Seoul plans to lease three A321-200s from Asiana and introduce two more aircraft in 2017.

Air Seoul will have more than 15 billion won in capital, which is required for gaining a license for international air transport operators.

Industry watchers said that Air Seoul will heat up the ongoing competition. "Many foreign airlines have already made inroads into the domestic market. In this situation, an additional establishment of the low-cost carrier will eat up each other's market," an industry insider said.

Air Busan

Expansion

Jin Air, affiliated with Korean Air, has recently extended its routes to Honolulu, Hawaii, the first long-haul international route for a budget carrier. It is expected to fuel competition between budget carriers and full-service ones over long-haul, profit-making routes.

Previously, the longest route operated by the budget carrier was that between Incheon and Guam, which takes six-and-a-half hours.

The Incheon-Honolulu route has five flights a week, with a ticket priced at 530,000 won which is half the cost of a ticket of other larger airlines.

"The short and mid-haul routes are already saturated among LCC competitors as they are vying to maximize their profits," an official of Jin Air said.

"We need to find a niche market and the necessity of the long routes is becoming bigger. We will preoccupy the market and widen the gap with other competitors through this route," he said.

Jin Air introduced a B777-200ER plane with 393 seats for the route. The company said that it will give more opportunities to passengers with more affordable prices and services for the long route.

Other budget carriers have aggressively sought expansion in terms of planes and routes.

The five no-frills airlines newly opened 39 international flights in 2015 alone. Jin Air opened 11 international routes including the Incheon-Honolulu one and bought six airplanes, bringing its total to 19.

T'way also began operations to 10 new destinations last year. Among them, four including the Daegu-Shanghai route and Muan-Tianjin route are based on regional airports which larger carriers rarely gain access to.

Jeju Air opened seven routes to international destinations, introducing seven new planes. It went public on Nov. 6 ― as the first budget carrier ― 10 years after its establishment. Jeju Air has the largest market share and stable revenue among LCCs.

Eastar Jet and Air Busan launched seven and five new routes, respectively. Air Busan is also seeking an IPO to expand its business this year.