The Korea Herald


Budget airlines gear up for takeoff


Published : Oct. 17, 2011 - 20:41

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Price war heats up as low-cost carriers expand international flight services

Lee Eun-young, a 27-year-old office worker, has longed to backpack overseas since college but her tight budget kept her stuck in Seoul even after getting a job. But it was a low-cost airline that quenched her thirst for an overseas trip.

“I first used Jin Air on a trip to Jeju Island and it was really not bad. So I tried Zest Airways last summer to go to the Philippines, which cost me slightly more than 300,000 won ($260) for round trip,” Lee said.

Although she later found that full-service carriers offer more spacious legroom and various options, Lee said she is willing to venture abroad again with no-frills airlines.

Lee is among a rising number of budget-conscious travelers getting aboard on low-cost carriers, or LCCs, which offer rock-bottom fares but less comfort.

Korea’s five budget airlines ― Jeju Air, Air Busan, Jin Air, Eastar Jet and T’way Air ― offer one-way tickets to Jeju for as low as 15,000 won. Malaysia’s Air Asia X, Thailand’s Orient Thai Airlines and the Philippines’s Zest Air and Cebu Pacific also fly to Seoul.

To make up for revenue shortfalls, budget airlines embrace a single aircraft type for their fleets, no refund policy, no frequent flyer program and free seating. Flight attendants wear T-shirts and jeans, and customers pay for priority boarding, extra food and excess check-in baggage.

“The underlying business for a LCC is to get a person from point A to point B. Everything else is considered to be a luxury item or frill, of which can be acquired for a small fee,” Air Asia, Asia’s largest short-haul carrier, said on its website.

Their cost-cutting scheme seems to have appealed to Korean customers.

The number of budget passengers shot up more than 30 percent on-year in the first two months of this year to 1.45 million, with about 81 percent on domestic flights, according to the Ministry of Land, Transportation and Maritime Affairs.

Another report showed that the combined market share of the five Korean budget airlines topped 50 percent in Gimpo-Jeju routes and 40 percent of all domestic itineraries in the first half of 2011.

Their combined revenue nearly doubled to 512.6 billion won last year from a year ago. Yet they saw their sales surge further in the first half of this year, reaching 346 billion won collectively.

“LCCs are the products of innovation that has originated from complaints made by customers against traditional airlines, which sell expensive tickets in exchange for services they didn’t choose,” said Jung Jae-young, a principal researcher at LG Economic Research Institute.

“In the past, customers had almost no choice for service and price other than first or business class. So budget airlines adopted a different concept that acknowledges consumer preferences.”

Already pummeled by skyrocketing fuel costs and tough competition, Korea’s full-service carriers ― Korean Air and Asiana Airlines ― face higher hurdles to their lucrative international routes as budget airlines increasingly steer overseas.

Jeju Air, the country’s largest budget airline, expanded the number of its international destinations to 11 this year from eight, including Hong Kong, Bangkok and Osaka.

Jin Air and Air Busan each have six short-haul international operations connecting to cities such as Shanghai and Tokyo. Eastar flies to Tokyo, Sapporo and Kota Kinabalu. T’way launched its maiden flight to Bangkok last week.

“Though many travelers are turning to LCCs for their local trips, we don’t see them as a big threat yet,” an Asiana spokesperson said. “Yes, we did hold some promotion events for our customers but we currently have no plans to cut prices permanently.”

A Korean Air official said his company and Jin Air were “interdependent” because their coexistence enables Korean Air to “maintain its premium image.”

Joo Ik-chan, an analyst at Eugene Investment & Securities, projects collective market share of local budget airlines would reach 15 percent for international flights in the coming years from the current 3.6 percent.

“Major carriers may not feel a huge impact at the moment since they operate far more international routes and they also have their own shares in some LCCs. But in the long term, budget carriers will likely take a toll on their business.”

Jin Air was established in 2008 by Korean Air, the country’s top carrier. Asiana Airlines, the runner-up, is the biggest stakeholder in Air Busan with 46 percent.

Some lawmakers, meanwhile, have raised concerns over flight safety.

Rep. Chung Hee-soo of the ruling Grand National Party pointed out that budget carriers are more prone to flight cancellations and delays owing to their hectic schedules.

The number of trips by a single jet averages at 6.5 for budget airlines, versus Korean Air’s 3.6 and Asiana’s 4.6, according to the Transport Ministry. Air Busan had the highest figure of 8.1.

“LCCs have small fleets so they keep on running the same planes over and over again,” Chung said last month. “So they naturally fall short of proper maintenance, which could lead to a major accident.”

Another issue on the table is a “flexible” rate policy.

The mechanism allows companies to set prices low for weekday flights and high for the weekend and busy seasons. But sometimes budget airlines charge even more than regular fares, Chung claims, with some tickets costing up to 20 percent extra.

In Korea, airlines do not need regulatory approval for any price changes for domestic flights but must give notice 20 days in advance.

By Shin Hyon-hee (