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.