- CAPA Analysis
- Schedule Analysis
- Low Cost Carriers
- Economics & Trade
- Print Summary
South Korea has an extensive flight network operated by the national airline Korean Air as well as other airlines. Incheon International Airport (ICN) is the largest airport in South Korea and the primary airport serving Seoul. ICN is the main hub for Korean Air, Asiana Airlines and Polar Air Cargo, and widely serviced by international carriers. Korean Air was founded by the government in the early 1960’s to replace Korean National Airlines and has been privately owned since the late 60’s. The Korea Transportation Safety Authority (KOTSA) is the transportation safety authority of the government of South Korea – which is responsible for air traffic safety and standards.
Airports in South Korea
3,452 total articles
61 total articles
For the first time since 2009, Korea's main carriers – Asiana and Korean Air – are both in the red for the first half of the year. While Korean Air's non-consolidated operating profit has improved from 1Q2013, Asiana's has deteriorated. As of 2Q2013 Korean Air is at a -1.5% operating margin while Asiana is at -3.2%. The difference is largely due to failure to practice capacity discipline: Asiana grew international ASKs by 7.2% while Korean Air grew its international ASKs only 0.9%. Two of Asiana's markets saw 16% growth, including China, whose current demand weakness is well known. Another weak market is Europe, where Korean Air cut capacity by 6% while Asiana grew by 6%.
Such brash moves from Asiana are perhaps only justified by taking a long-term view that capacity must be put in now to secure a position in the future, but this is a bet. The third quarter is typically the strongest for the carriers, when they can derive upwards of 50% of their annual profits. But unchanged is underlying regional weakness that has seen yields plummet. Capacity discipline is also wanting: Asiana so far is due to grow 5.7% in 3Q2013. Meanwhile a curious hybridisation movement is hatching at Asiana, which will re-configure eight A320s to an all-economy regional layout.
Korean LCCs are increasing their market share, accounting for 10% of the international market and just under 50% in the much smaller domestic arena. But they are still passing up numerous opportunities, and these are becoming more apparent and with greater impact as LCCs increase in North Asia, notably Japan.
Two – Air Busan and Jin Air – are tethered to their full-service parents while independent Jeju Air has done comparatively well and preparing for an IPO to advance growth. But smaller independent LCCs Eastar Jet and t'way are still moving up. They straddle the low-cost and full-service spectrum, being closer to low fare than low-cost airlines. While they argue the Korean market is not ready for LCCs, they know they must move as international competition intensifies. They only need to look at Japan's Peach, which is finding success in another market once thought to be too sensitive for LCCs. AirAsia Japan's failure is a reminder that finding the nuances and achieving balance between management style, market demand and the balance sheet is not easy.
South Korea-Japan airline market sees structural change from LCCs, political tension & weakening yen
The once tidy and highly profitable Japan-Korean market is undergoing fundamental change – accompanied by double-digit yield declines.
It is difficult to identify precisely which ingredients are provoking the greatest change in the South Korea-Japan airline market. First, in mid/late 2012 the market was transformed as new airlines entered and others added capacity; these were mainly LCCs with unprecedented low fares. Then late 2012 saw Japanese outbound tourist numbers fall sharply due to political tensions between South Korea and Japan over largely uninhabited but disputed islands.
In 2013 the Japanese outbound market remains soft as the yen weakens. While the international political situation will eventually cool down, the Korean response has been to target individual tourists rather than tour groups, a change that was long overdue in any event.
But the difference now is that those individuals have LCCs to provide for their needs. These carriers are here to stay, and they will grow – for the usual reasons, but also due to the weakening yen. While the economic and political factors favour the Korean side, it is the Japanese side that has a larger share of the market.
One of the highest growth rates in North Asia in 2013 will be from South Korea's Asiana, which is projecting a 9% increase in RPKs. This compares to 4% RPK growth at Korean Air and modest growth from All Nippon Airways and Japan Airlines. Many Chinese carriers will have similar or higher growth, but notably Air China will be lower as it runs out of slots.
The focus in 2013 for Asiana, globally the 54th largest airline based on capacity and sixth largest for intra-Asia international capacity, is regional flights, increasing capacity to cities including Chongqing and Yangon and launching new services to Denpasar and Jakarta. This traffic will help feed its long-haul network, due to commence notable expansion beginning in 2014 as A380s replace 777-200ERs, facilitating their re-deployment to new routes.
Change may finally be coming to South Korea’s low-cost carrier scene. Once the home of innovation and the only notable examples of LCCs in North Asia, the numerous LCCs stagnated under a “Korea-style” LCC model that reduced some costs, making them lower-cost than the full-service legacy incumbents, but far from being internationally competitive. There were bouts of unprofitability and plenty of unexploited opportunities for expansion.
Independent Jeju Air, Korea’s third-oldest carrier (now eight years old) and first LCC, is more acutely aware than its mainline subsidiary LCCs of the changing dynamics in North Asia and is looking to respond.
Japanese low-cost carriers as well as those from Southeast Asia have a growing presence in Korea, and the Korean market is increasingly warming to them. With a new CEO, Jeju Air is looking to move away from its hybrid model to further reduce costs, and is also open to partnerships and alliances. If Jeju is able to achieve these goals, Korea’s other LCCs will be pressed to respond – creating a very dynamic North Asia LCC scene.
As liberalisation and more progressive thinking spreads across North Asia, the region's pan-Asian LCCs are looking at how to have a local presence in South Korea. While South Korea in the middle of last decade became the first North Asian country to see the launch of LCCs, there has been stagnation at the expense of cost bases, creating room for a new LCC with a lower cost base to enter. An effort in 2008 from Tiger Airways to establish Tiger Incheon backfired, which, combined with weak performances at some incumbents, has caused foreign LCC groups to look at acquiring an existing carrier.
AirAsia is understood to have looked but left, leaving Tiger as most likely Asian LCC group to enter the South Korean market because Jetstar is now bedding down growth elsewhere and following from its Vietnam experience does not take a positive view towards acquiring another carrier. Indeed, global examples of LCC mergers are few, but this may be the platform necessary for South Korea.
It has no domestic market like Japan but a thriving international market with surprising numbers of liberalised air services, the spark to generate growth. Whether an acquisition pans out or not, South Korean aviation is in need of a shake-up.