Asiana’s new LCC poses a threat to other carriers

Asiana Airlines is expanding its business in the low cost carrier (LCC) market as part of its work to improve profitability, but other budget airlines are concerned that the nation’s two leading carriers, Korean Air, which runs LCC Jin Air, and Asiana, which operates Air Busan, will become too dominant in the local market.

Asiana’s plan is simple. The company will establish the LCC, which it tentatively named Seoul Air, and the airline will pick up routes from which Asiana has struggled to profit.

The company has been considering launching another budget airline since last year to carry out its plan and finalized the move at a board of directors meeting Tuesday. The company promoted Senior Managing Director Ryu Kwang-hee as the CEO of Seoul Air and formed a task force of 14 officials.

The airline said it will soon establish Seoul Air as a separate corporation and expects to wrap up all the necessary paperwork, including acquiring a flying license from the Ministry of Land, Infrastructure and Transport, as soon as possible so the new LCC can start flights this year.

The company said it hasn’t decided which flights the new LCC will take over from Asiana, but it is likely Seoul Air will pick up some of Asiana’s less popular routes to Japan and Southeast Asia.

The number of passengers flying to Japan on Asiana has been consistently decreasing, from 3.2 million in 2012 to 3 million in 2013 and 2.8 million last year, according to the company.

Asiana said it can’t give up the loss-making lines entirely because it would weaken its business network. The company’s first LCC, Air Busan, based out of Gimhae International Airport in Busan, will continue to focus on flights in the Yeongnam region of South and North Gyeongsang. Seoul Air will fill in the gaps on money-losing routes previously managed by Asiana that fly out of Incheon International Airport, according to the airline.

The company considers this a part of restructuring that will maximize the company’s profitability, said Min Man-gee, spokesman for Asiana Airlines. “Since the operating cost for an LCC is about 70 to 80 percent of the cost of a full service carrier, we expect Seoul Air can improve the company’s overall profit structure.”

Industry insiders say Seoul Air would bring much bigger profits to Asiana because the company already knows how to operate an LCC.

But three of the five existing budget carriers - Jeju Air, Eastar and T’Way - are worried that Seoul Air will make competing against Asiana impossible.

The three carriers filed a complaint last week to the Transportation Ministry asking it not to approve Asiana’s expansion. They said that allowing another budget airline operated by a major company into the market would threaten their existence.

“It will definitely lower other LCCs’ competitiveness if a giant company like Asiana comes into the market and begins a [ticket] price war,” said an executive of an LCC on condition of anonymity. “If competitors are knocked out of the battle, imagine what is going to happen next.”

BY KWON SANG-SOO [kwon.sangsoo@joongang.co.kr]