Budget airlines finally in the black

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Budget airlines finally in the black

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Local budget airlines are finally getting into the black after a relatively slow takeoff compared to those in developed countries.

Jin Air and Air Busan recorded annual operating profits for two consecutive years since 2010, and Jeju Air made a profit for the first time last year.

The turnaround is attributed to an increasing number of international flights, which are more lucrative than domestic flights.

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Jeju Air turned an operating profit of 13.9 billion won ($12.3 million) last year, an impressive turnaround from an operating loss of 6.1 billion won in 2010.

Air Busan, launched in 2008, started operations in 2009 and in only one year, it posted an operating profit of 3.7 billion won in 2010. Profit dipped last year to 2.1 billion won.

Jin Air posted an operating profit of 7.5 billion won in 2010, turning a profit for the first time since starting in 2008. The airline has not announced last year’s results but said its bottom line was in black.

The improvement is all about more international flights.

“They charge three to four times more for international flights than for domestic flights,” said an analyst who declined to be named. “International flights are much more profitable.”

Eastar Jet and t’way Air did not record operating profits last year but significantly reduced their operating losses and are expected to turn a profit this year.

The airlines are also getting much more popular. Budget airlines flew 8.69 million passengers on domestic routes last year, raising their combined local market share to 41.4 percent, according to the Ministry of Land, Transport and Maritime Affairs. This was the first time that their domestic market share surpassed 40 percent. On some domestic routes including Gimpo-Jeju, Gimhae-Jeju and Gunsan-Jeju, budget airlines command over 50 percent market share.

Low-cost carriers are relative newcomers on international routes. They flew 1.83 million passengers on international routes last year. Their market share rose from 2.3 percent to 4.3 percent in 2011. In February, it rose to 6.4 percent. On international routes, low-cost carriers have a 100 percent share in Gimpo-Nagoya flights, a 94.1 percent share on Incheon-Kitakyushu, 67.1 percent on Gimhae-Taipei and 57.2 percent on Gimhae-Cebu.

Unlike Europe and the U.S., Korea’s aviation market has a short history, and the demand for air travel has been relatively small because per capita income was lower.

“Korea’s aviation market is too small. It is tough for budget airlines,” said Park Eun-kyung, an analyst at Samsung Securities.

Park said budget airlines’ future depends on how fast the regional market expands for them. “Local low-cost carriers’ success depends on how fast Northeast Asian countries, especially China, adopt open skies policies.”

Jeju Air, the country’s leading low-cost carrier, recently became the first budget carrier to have more than nine planes. The airline brought in two Boeing B737-800 airplanes, raising the size of its fleet to 10. The airline plans to bring in two more by the end of this year.

“We’re trying to achieve economies of scale as the Northeast Asian aviation market is becoming fiercely competitive,” said Song Kyung-hoon, a spokesman for the airline. “On short-haul routes to China and Japan, low-cost carriers are more competitive than traditional airlines.”

Air Busan started daily flights from Busan to Qingdao, China, on March 19, raising the number of its international routes to 10. It operates on three domestic routes and seven international routes to Osaka, Tokyo, Cebu, Taipei, Hong Kong and other Southeast Asian destinations.

Air Busan added its eighth airplane on March 14, an Airbus A321-200. The Busan-based carrier plans to add an identical airplane in October, increasing the total number of its fleet to nine.

The smallest of the five budget carriers, t’way Air, also started international flights last year, flying between Incheon and Bangkok and between Incheon and Fukuoka, Japan.

The market for budget airlines is getting more competitive as well. There are an increasing number of foreign budget airlines knocking on Korea’s door. Peach Aviation, AirAsia Japan and Jetstar Japan, all based in Japan, are entering his year. China’s Spring Airlines and Thailand’s Orient Thai are also expected to launch services.


By Limb Jae-un [jbiz91@joongang.co.kr]

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