More budget carriers rush to overpopulate the market

2017.09.11 14:33:35 | 2017.09.11 14:35:00
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Six new low-cost carriers (LCCs) are bidding to enter the South Korean market, cramming into an already overpopulated segment.

According to the airline industry on Sunday, the Ministry of Land, Infrastructure and Transport will decide whether to issue an international operation license to Aero K and Fly Yangyang this month.

Four others including Air Daegu and Prime Air are also working to obtain necessary aircrafts and licenses to join them in the LCC race, with an aim to begin flights by the end of next year.

If approved, the number of budget carrier operators in Korea could double from current six to 12. The additions would stoke a bulge in the industry as it competes in a much smaller market. Countries with a much bigger population do not have that many, with China having eight LCCs and Japan and the United States six.

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Low-cost airlines have enjoyed rapid growth in Korea since 2013 as more Koreans started traveling overseas. A recent study by Maeil Business Newspaper found that the operating margin of Korea’s six LCCs - including Jeju Air, Jin Air, Air Busan, Air Seoul, Eastar Jet and T’way Air - stood at 7 percent in the first half of this year, higher than that of major airlines at 4.9 percent.

But analysts are in doubt whether this growth streak will continue given the saturated market.

In the second quarter ended June, LCCs commanded a market share of 35.5 percent, nearing the 43.4 percent share of large carriers. In domestic flights, they hold a market share of 55.5 percent, already surpassing the 44.5 percent of their bigger rivals.

“Competition in the Korean budget airline market is already fierce, with six carriers operating over 110 routes,” said an industry insider, warning that adding more airlines without infrastructure expansion would only exacerbate “the chaos.”

The transport ministry said it will consider all factors, including market demand, before allowing more airlines into the industry.

By Kim Jung-hwan

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]

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