South Korea’s low-cost carrier (LCC) sector is primed for a fresh wave of growth, with the government approving new entrants and some existing LCCs planning major fleet expansions.
The looming increase in competition will complicate what is an already heavily contested LCC market. The new players will present challenges for full-service legacy carriers Korean Air and Asiana Airlines, and also for the six-largest incumbent LCCs in South Korea.
As in other markets, LCCs in South Korea believe there is still potential for growth, as they can stimulate new demand as well as capture traffic from foreign and domestic competitors. However, it appears the South Korean LCC sector is gathering enough critical mass that it could be ripe for some consolidation in the near future.
The existing LCC players include Jin Air, owned by Korean Air, and Air Busan and Air Seoul, both owned by Asiana. Jeju Air is an independent operator, and the others are Eastar Jet and T’Way Air. These six have a combined fleet of about 140 aircraft. They account for 46.2% of international and domestic capacity for all South Korea-based carriers, according to data from the CAPA Center for Aviation (see chart).
South Korea’s ministry of land, infrastructure and transport (MOLIT) on March 5 granted approval for three new LCCs to enter service. MOLIT was considering four passenger LCCs and one cargo carrier in the latest round of airline license applications. The successful carriers were Aero K, Air Premia and Fly Gangwon. The unsuccessful applicants were Air Philip and a cargo LCC that was to be operated by Guardians Airline.
The South Korean government has been reluctant to allow new startups in recent years due to concerns about congestion and excess competition. Two of the airlines—Aero K and Fly Gangwon—applied in 2017 but were rejected. They reapplied in November, after the government reviewed its criteria and accepted new proposals.
MOLIT examined the applicants’ business plans and financial backing to determine their viability. The ministry stressed that the additional LCCs will create jobs, reduce fares and boost some regional airports. Having been granted business licenses by MOLIT, the three airlines can now begin the process of obtaining air operators’ certificates (AOC). They are required to begin service within two years.
Aero K will be based in Cheongju, a city near the center of South Korea. Although Cheongju is served by other airlines, none is currently based there. The airline hopes to gain its AOC in time to launch service by the end of this year, the airline’s representative director, Mike Kang, told Aviation Week recently. He said Aero K intends to begin with three Airbus A320s, adding more leased aircraft in 2020. The airline has a total of eight firm orders for Airbus A320s. Initial destinations are expected to be in Japan, China and Vietnam.
Air Premia will be based at Seoul Incheon International Airport. The carrier intends to serve mid-to-long-range routes using Boeing 787-9s. Air Premia says it is targeting operational launch in September 2020, with its first long-haul route in 2021. The initial long-haul destinations could include Los Angeles or San Jose, California, with Honolulu and Vancouver also high on its priority list.
The carrier plans to launch with three 787-9s and then add up to two aircraft a year. This would allow Air Premia’s fleet to reach 10 aircraft within five years, the carrier says. It intends to configure its 787-9s with two classes: economy and premium economy.
Fly Gangwon will be based in Yangyang, in the northeast region of South Korea. It will operate Boeing 737-800s, and will initially target routes to China, Japan and the Philippines, according to MOLIT.
Of the incumbent LCCs, Jeju has the most ambitious growth aspirations. The carrier ordered 40 737-8s in November, with options for another 10. They are due for delivery in 2022-26, but some may be exchanged for 737-10s.
In placing this order, Jeju acknowledged that the short-haul LCC market is already congested. The carrier says there are limited new market opportunities within range of its current fleet of 737-800s, but it notes it can fly 650 nm farther with the 737-8s it has ordered. Jeju has indicated it could potentially use these aircraft to target Singapore, Bali and Indonesia, as well as other destinations in Thailand, Malaysia and Indonesia.
Eastar Jet is also basing its growth plans on the 737 MAX. It operates two 737-8s as well as 19 737NGs, and has four more -8s on order. However, like other carriers it has had to ground its MAX aircraft while accident investigations continue.
Jin Air is South Korea’s second-largest LCC by capacity after Jeju. The carrier’s fleet is primarily based on 21 737-800s, but it also operates four 777-200ERs. It has grown its fleet with 737s and 777s transferred from parent Korean Air.
Jin Air’s short-term growth has been halted due to restrictions imposed by the Korean government, though. These stem from revelations that a former Jin Air board member was a U.S. citizen, which is not allowed under South Korean regulations. The board member in question was Cho Hyun-min, who is the daughter of Korean Air Chairman Cho Yang-ho.
MOLIT held hearings to consider what action to take against Jin Air, which could have included revoking its license. However, the ministry decided instead to prevent the airline from registering new routes or
aircraft for an undetermined period of time. Jin Air committed to strengthening its corporate culture and making improvements in other areas.
Korean Air says these restrictions remain in place, although the airline notes that Jin Air has “already fulfilled the ministry’s recommendations to improve leadership culture and management process.” The ministry is expected to decide whether to remove the constraints after evaluating the airline. Jin Air will not confirm its fleet plans until after the growth restrictions have been removed, the airline says.
Korean Air has 737 MAX and A321neo narrowbodies on order, which will be used to replace aging 737NGs, and these are due to begin arriving this year. However, it is too early to tell if any of these will go to Jin Air, according to the parent airline. c