Korea set for LCC growth

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Carrier brings forward launch of low-cost unit after Tiger reveals plans for Korean affiliate

More signs are emerging that South Korea is set to be Asia's next big low-cost airline market, with Korean Air bringing forward plans to launch a subsidiary carrier to challenge new players including Tiger Airways.

Korean is the latest to seek to enter the market in an aggressive manner, announcing plans in late November to launch a new airline tentatively called Air Korea around May 2008. It had earlier in 2007 revealed it would establish a low-cost subsidiary sometime over the next three years, but is bringing this forward as new competition is emerging more quickly than it anticipated.

Young-Ho Kim, president of Korean's passenger division, said earlier in announcing the plans that it was part of Korean's desire "to proactively deal with changes in the airline industry".

Air Korea and other proposed new players such as Incheon Tiger Airways and Yeongnam Air have been planning mainly for international services. But the South Korean government recently took them all by surprise by introducing a new regulation that start-up airlines must operate two years domestically before going abroad.

Korean and Incheon Tiger, which is a joint venture between Singapore-based Tiger and the Incheon municipal government, say they are both still studying the new regulations. But they expect to press ahead with their plans regardless, starting with domestic services unless they are somehow able to find a way around the new rules. Busan-based Yeongnam plans to start domestic services in early 2008 followed eventually by international services.

Korean says its board has approved an investment of 20 billion won ($22 million) to establish Incheon-based Air Korea. It hopes to serve destinations in China as well as Japan, Malaysia and Thailand - countries with which South Korea has highly liberal air services agreements. Its fleet will initially comprise three Airbus A300s and two Boeing 737s.

South Korea now has liberal air services agreements with its aviation partners including China and Japan, providing opportunities for low-cost operations. Domestically, the air transport market has been in decline in South Korea as a result of competition from high-speed rail services, prompting the full-service incumbents Korean and Asiana Airlines to shift more of their capacity to international operations.

Korea's other two carriers, regional operators Han Sung Airlines and Jeju Air, have also said they are looking to expand into the international market. Han Sung is already more than two years old while Jeju Air, which could become a takeover target for one of the new players, passes the milestone in mid-2008.

Korean plans for low-cost unit Air Korea to mainly ­­go international