Korea’s low-cost carriers suffer

Foreign carriers attract local travelers with bargain fares

By Lee Hyo-sik

Korea’s five budget carriers — Jeju Air, Jin Air, Air Busan, Eastar Jet and T’way Air — are losing customers to foreign low-cost carriers (LCCs) armed with extremely low fares.

Currently, 11 foreign budget carriers, including AirAsia X and Peach Aviation, are flying to Korea linking Incheon and Busan with destinations in Asia. Several more Asia-based LCCs are preparing to launch routes into the country, posing a threat to high-flying local budget carriers.

Domestic LCCs have been performing well in recent years at the expense of the nation’s two flagship carriers, Korean Air and Asiana Airlines. They have wooed substantial numbers of price-conscious travelers by offering lower fares and differentiated services on both domestic and international routes.

But they are now on the defensive against foreign rivals in order to protect their home turf.

In particular, local carriers are on alert over AirAsia X, a Malaysia-headquartered LCC, which has been aggressively expanding its presence in Korea and other Asian countries. The affiliate of Asia’s largest budget carrier AirAsia began flying to Incheon from Kuala Lumpur in 2010.

On June 18, Thai AirAsia X, a subsidiary of AirAsia X set up in Thailand, is scheduled to start the Incheon-Bangkok route and to offer tickets at extremely low prices to woo local travelers.

Ahead of the launch of the new route, AirAsia X sold round-trip tickets for the Incheon-Kuala Lumpur route and the Busan-Kuala Lumpur route for only 99,000 won ($90) from June 2 through 8, creating a buying frenzy among budget-conscious travelers.

”AirAsia X established in 2007 runs flights that take over 4 hours. It currently operates 19 Airbus 330-300s on routes to 19 cities in eight countries from Malaysia,” said Lee Jeong-kyung, AirAsia representative in Korea. “Its parent AirAsia X operates flights that take less than 4 hours with 150 airplanes.”

AirAsia X will soon launch a second subsidiary in Indonesia, which will fly to Incheon from Jakarta. The company is also considering setting up a presence in Korea, which will likely further corner local players.

Lee said AirAsia X is able to offer lower fares that Korean LCCs thanks to its unique business model.

”The company excels in reducing costs while maintaining the highest safety standards. Korean carriers spend substantial amounts of money to run commercials in TV and newspapers, and hire advertizing models,” she said. ”But AirAsia X doesn’t. So this enables the company to offer competitive fares.”

Local LCCs increasingly become cautious

Domestic budget carriers are downplaying the entry of AirAsia X and other foreign LCCs in recent years, but are paying increasing attention to their moves.

”We are monitoring every move of foreign budget carriers entering the Korean market,” Jeju Air spokesman Song Kyung-hoon said. ”The threat from foreign LCCs has been around when Jeju Air was launched eight years ago. The competition will become fiercer in a short term in line with foreign LCCs’ entry into the local market. But in the long run, Korea will turn into the LCC-based market from the one dominated by Korean Air and Asiana Airlines. This is good for us.”

Jeju Air is Korea’s largest budget carrier by revenue and operates 14 international routes with 15 Boeing 737-800 aircraft.

Jin Air spokesman Park Jeong-hoon also echoed Song’s view, saying that the airline monitors the movements of foreign LCCs.

”The local LCC market has been growing rapidly and will continue to do so over the next few years. Foreign LCCs’ advance into Korea does not pose a serious threat,” Park said. ”Jin Air is in a better position than four other local LCCs because it doesn’t fly to Bangkok and other major destinations in Asia to avoid the intense competition.”

Jin Air is the country’s second-largest budget carrier operating 12 international routes with 11 Boeing 737-800 aircraft.

When the Asia’s aviation market becomes saturated in the future, Jin Air will fly beyond the region, Park said. ”We will fly beyond Asia to Europe and North America. We are considering purchasing larger aircraft capable of flying long-distance routes.”