A sixth budget airline is expected to receive approval from the South Korean government Wednesday and expects to start services on July 11.
Asiana Airlines Inc.’s fully owned new low-cost unit, Air Seoul Co., will take over some of the short-haul flights that are less profitable for its parent, Bloomberg reports.
It will start flying on the world’s busiest Gimpo-Jeju route for three months before venturing overseas.
The latest addition is a sign of surging demand for air travel as more Koreans take advantage of affordable fares for a relaxing vacation in Japan’s hot springs or shopping trips to Hong Kong.
While competition is good news for fliers, it may hurt some struggling carriers in a crowded market when oil rebounds and weighs on earnings, said Um Kyung A, an analyst at Shinyoung Securities Co.
“In a way, some of the financially unstable ones were saved by the slump in crude oil prices,” Seoul-based Um said in an interview.
“The problem will come when oil prices start to rise again. That’s when some of these budget carriers may start having financial difficulties.”
In 2015, all the five existing carriers reported profit as a 26 percent slide in oil prices lowered fuel costs.
Still, total debt at Eastar Jet and Tway Air Co. is in excess of their assets.
Shares of Jeju Air Co., the only listed Korean budget carrier, have fallen 22 percent this year compared with a 1.5 percent gain in the benchmark KOSPI index, amid efforts to cap costs.
Promotional offers show how competition for passengers has driven down fares. Jeju Air’s Facebook Inc. page advertised a ticket price of as low as US$10 for some of its Japan-Seoul routes, US$13 for its Taipei-Busan route and US$1.50 for its Beijing-Taegu leg.
About 29 million Korean passengers flew overseas in the first five months of this year, with those flying budget accounting for 17.9 percent of the total, according to the Ministry of Land, Infrastructure and Transport.
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