Korean Air to launch low cost airline within three years

(CAPA) Korean Air announced that it will launch a new low cost carrier within three years. The carrier has been studying the feasibility of a move since 2005 and is reacting to the invasion of its market by LCCs from China and Southeast Asia.

For the new airline, Korean Air is considering using one of its Hanjin Group affiliates, Korea Airport Service, which has charter flight operation experience, rather than setting up a new company.

Young-Ho Kim, President of Korean Air’s Passenger Division stated “Korean Air aims to differentiate the new low cost carrier with excellence, using the experience, world-class maintenance skills and fleet efficiency know-how accumulated for more than 35 years through Korean Air operation, in order to proactively deal with changes in the airline industry.”

Korean Air’s LCC will operate Korean domestic routes and short and mid-haul international routes using B737 fleet, with the “now-typical” low-cost low-price model.

With this new LCC, Korean Air, Hanjin Group’s core company, will maintain its global carrier image focusing on premium business travel demand, while the LCC will concentrate on tourist routes, complementing each other in the market for a win-win relationship.

LCCs make up 20% of the entire airline market in the US and Europe, and are expanding quickly in China and Southeast Asia. According to Korean Air, the growth can be explained through changes in the industry, particularly liberalisation. Unlike the past, when strict government regulations restricted the establishment of new airlines, deregulation and spreading open skies policies has lowered the bar for new players trying to enter the airline industry.

With this trend, LCCs are forming a “new domain” of the airline industry in all regions of the world. Additionally, the customer base for air travel is widening from a limited high-income bracket to include more and more family travel, overseas studies, and others, allowing much potential travel demand left to be developed.

Korean Air’s decision to launch its own LCC derives is a display of the carrier’s will that it shall no longer remain indifferent to invasion of low cost carriers from China and Southeast Asia into the Korean market.

The carrier has previously expressed its opposition to dump selling and unreliable tourism packages centered around some LCCs, causing market disturbance and customer inconvenience, and believes such practices must be stopped.

Korean Air’s strategy will be to differentiate the new low cost venture with its experience, world-class maintenance skills and fleet efficiency know-how may bring about positive alteration to the low cost carrier market.

The low cost plan also takes into strategic consideration the expected changes in Korea’s domestic aviation market. Within 2 or 3 years, when Korea’s high speed railway is completely open for service, much of the domestic air traffic demand is expected to shift to the railway, inevitably calling for a restructuring of domestic route flight operations.

Korean Air has concluded that it must develop new markets and business models to effectively utilise the fleet that will be freed from the handover domestic operations. Korean Air, the world’s current top commercial air cargo carrier, has its goal set to become a top 10 global leading carrier by 2010. The low cost plan is expected to add more momentum to reaching this goal.

Date posted: 05-Jun-07