Budget airlines the flavour of S.Korean aviation market, Jeju travel booms

Jin Air Co

01/06/2019 12:34

* Carriers like Jeju Air, T'Way take advantage of rising
demand
    * Incumbents Korean Air and Asiana have lost market share
    * Korea has larger budget airline penetration than China,
Japan

    By Heekyong Yang
    JEJU, South Korea, June 1 (Reuters) - Kim Bo-Min, a
Starbucks barista, paid 140,000 won ($118) for a round-trip from
her hometown of Daegu to the popular resort island of Jeju,
arriving on T'Way Air Co Ltd  091810.KS , part of South Korea's
rapidly growing low-cost airline sector.
    The route between Jeju and Seoul has in fact emerged as the
world's busiest domestic one as travellers like Bo-Min flock to
the southern resort island, lured by cheaper rates from budget
carriers. The 28-year-old barista would have paid 22% more if
she had flown Korean Air Lines Co Ltd  003490.KS .
    "I have taken both full-service airlines and budget carriers
for my previous Jeju trips, but I do not think there is much
difference when it comes to services," she told Reuters after
her flight of under one hour to Jeju.
    Korean low-cost carriers (LCCs) have cornered a large chunk
of the domestic market since Jeju Air Co Ltd  089590.KS 
launched in 2005 with five Q400 turboprops, turning up the heat
for bigger players like Korean Air and Asiana Airlines Inc
 020560.KS  and pushing them to start their own budget brands.
    Jeju Air is South Korea's No.3 airline by revenue, operating
6 local and 66 international routes with 42 Boeing 737-700 jets.
In November, it placed a $4.4 billion order for 50 737 MAX jets.
 urn:newsml:reuters.com:*:nL4N1XV1X4
    The budget airline boom has fuelled a spike in travel to
Jeju, with the number of tourists jumping almost three-fold to
14.3 million over 2005-2018 from 5.3 million, Jeju Tourism
Association data shows. https://tmsnrt.rs/2WEa5b8
    South Korea's five no-frills carriers had a 61% share of the
Jeju travel market in 2018, according to data firm OAG. 
    "Not too long ago, many South Koreans found air travel a
luxury, but perception has changed as budget carriers brought us
lower fares, allowing more affordable travel," an official at
Korea's Airports Corporation's Jeju International Airport said,
declining to be named due to company policy.
    
    S.KOREA LEADS 
    In broader North Asia, LCCs have been slower to take off
than in other parts of the world, due partly to slow-moving
Chinese policies, a domestic aviation duopoly in Japan and
Cathay Pacific's  0293.HK  dominance of the Hong Kong market. 
    But South Korea, host to the high-profile International Air
Transport Association annual meeting in Seoul this weekend, is
the outlier, with local start-ups like Jeju, financially backed
by the Jeju Island government, being encouraged to grow. 
    The country's transport ministry in March issued aviation
business licences to three additional budget carriers, further
crowding the industry and intensifying competition. 
    The 53% domestic market share of carriers like Jeju and Jin
Air Co Ltd  272450.KS  outstrips the 9% LCC penetration in Japan
and 13% in China, data from CAPA Centre for Aviation shows.
    Internationally, South Korean LCCs have rapidly expanded on
routes to nearby destinations like Japan, Vietnam and China with
narrowbody jets, with their market share growing to nearly 57
percent on international routes to Japan in 2017, from 44
percent in 2016, according to South Korea's transport ministry.
    "We should not underestimate how important the role of
budget carriers are on a given route," said Park Seong-bong, a
senior analyst at Seoul-based Hana Financial Investment.
    
    INCUMBENTS FEEL THE HEAT 
    With the fleet size of the country's budget carriers jumping
three-fold over the past five years, legacy carriers Korean Air
and Asiana are feeling the heat. 
    Korean Air's operating profit fell over 40 percent to 640
billion won ($537 million) in 2018 from 1.1 trillion won in
2016, while Jeju Air's operating profit nearly doubled to 100
billion won over the period. 
    Korean Air's budget arm Jin Air has come under a lot of
pressure in the wake of public outrage over the behaviour of
members of its founding family, while financially troubled
Asiana's largest shareholder has put its stake up for sale.
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    Their pains have meant gains for independent budget carriers
like Jeju Air and Eastar Jet as they expand their long-haul
routes such as Busan-Singapore to attract more customers.
    "For long-haul routes, customers tend to seek more premium
services which used to be found in full-service carriers. We are
now providing business-class like services at more competitive
prices," said Lee Dae-woo, a deputy general manager at Jeju Air.
 ($1 = 1,188.0000 won)

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The world's busiest flight routes     https://tmsnrt.rs/2WEa5b8
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 (Reporting by Heekyong Yang; additional reporting by Jamie
Freed in Seoul; Editing by Himani Sarkar)
 ((Heekyong.Yang@thomsonreuters.com; +82 2 3704 5647; Reuters
Messaging: heekyong.yang.thomsonreuters.com@reuters.net))