Korean Air, South Korea's largest carrier, announced that it will launch a new low cost carrier within three years.
Korean Air is part of Hanjin Group, one of the world's largest transportation conglomerates including Korean Air and Hanjin Shipping. In 2005, Korean Air organized a special task force to study the feasibility of operating its own low cost carrier. For the new airline, Korean Air is considering using one of its Hanjin Group affiliates, Korea Airport Service, which has charter flight operation experience, rather than setting up a new company.
With the announcement, Young-Ho Kim, President of Korean Air's Passenger Division declared, "Korean Air aims to differentiate the new low cost carrier with excellence, using the experience, world-class maintenance skills and fleet efficiency know-how accumulated for more than 35 years through Korean Air operation, in order to proactively deal with changes in the airline industry."
Korean Air's low cost carrier will operate Korea domestic routes and short and mid-haul international routes using Boeing 737 fleet that boast high-efficiency, with the now-typical low-cost low-price model. With this new low cost carrier, Korean Air, Hanjin Group's core company, will maintain its global carrier image focusing on premium business travel demand, while the low cost carrier will concentrate on tourist routes, complementing each other in the market for a win-win relationship.
Low cost carriers make up 20% of the entire airline market in the United States and Europe, and are expanding quickly in China and Southeast Asia. Such growth can be explained through changes of the industry.
Unlike the past when strict government regulations restricted the establishment of new airlines, deregulation and spreading open skies policies has lowered the bar for new players trying to enter the airline industry. With this trend, low cost carriers are forming a new domain of the airline industry in all regions of the world. Also, the air travel customer base is widening from a limited high-income bracket to include more and more family travel, overseas studies, and others, allowing much potential travel demand left to be developed.
The South Korean flag carrier has asserted many times that dump selling and unreliable tourism packages centered around some low cost carriers, causing market disturbance and customer inconvenience, must be stopped. Korean Air's strategy to differentiate the new low cost venture with its experience, world-class maintenance skills and fleet efficiency know-how may bring about positive alteration to the low cost carrier market.
The low cost plan also takes into strategic consideration the expected changes in Korea's domestic aviation market. Within 2 or 3 years, when Korea's high speed railway is completely open for service, much of the domestic air traffic demand is expected to shift to the railway, inevitably calling for a restructuring of domestic route flight operations. It is Korean Air's conclusion that it must develop new markets and business models to effectively utilize the fleet that will be freed from domestic operations.