Seoul Incheon airport confronts a new paradigm: Chinese/Japanese hubs take transfer traffic

At first blush, Korea has much to celebrate. Flagship airport Seoul Incheon International saw a 9.7% increase in 2014 passenger numbers, well above the country's 3% GDP growth rate. Visitor arrivals increased 17%, continuing a streak of near double digit annual growth. These are accomplishments, but Seoul Incheon is worried about falling transit traffic: after over a decade of transit growth, 2014 saw a half million decrease in transit passengers. The share of transit passengers fell to 16% from a high of 18% in 2009.

Driving this is a confluence of events: the "Korean Wave" means Korean Air and Asiana are carrying more point-to-point passengers, traffic rights with key source markets have not been expanded, and once-sleepy Asian airline and airport peers are waking up and taking back the traffic Incheon has attracted. Long-haul growth is occurring out of Beijing, Tokyo, Hong Kong and Taipei. Incheon wants to have 10 million transit passengers in 2017 and is looking for new opportunities, but so far these plans are vague. Incheon may follow Singapore Changi's move to target LCC connections, which Kuala Lumpur has excelled at.

Yet Korea's regulator is overlooking the queue of airlines - from Singapore Airlines to Emirates - that have been asking for more traffic rights. Protecting the nation's flag carriers may come with a price.