[NEWS IN FOCUS] Low-cost carriers jump into the long-haul business

Industry

Published: 15 Apr. 2023, 06:00 Updated: 15 Apr. 2023, 20:42

[NEWS IN FOCUS] Low-cost carriers jump into the long-haul business

Low-cost carriers (LCCs) are parked at the Incheon International Airport apron. [NEWS1]

Ahead of the summer season, budget airlines in Korea are preparing to expand their operations to include mid- to long-haul flights to improve their revenue streams.

One destination that low-cost carriers (LCCs) are eyeing is Indonesia, which is no longer just a popular tourist destination but also an increasingly attractive market for business opportunities.

Jeju Air, for instance, will operate a pair of charter flights to Indonesia’s Manado and Batam in May, marking the airline's first-ever flights to the Southeast Asian country. The charter flights will depart from Incheon to Manado on May 18 and from Incheon to Batam on May 19.

Jeju Air has been actively looking to tap into the Indonesian market. The carrier signed an MOU with Indonesia’s North Sulawesi Province in September last year, and in January this year, it signed an accord with PT Angkasa Pura 1 (AP1), the largest airline corporation in Indonesia, to explore opportunities to offer flights to the archipelago nation.

“Depending on demand and the situation of procuring traffic rights in Indonesia, we could consider turning the charter flights into regular routes,” a Jeju Air spokesperson said.

Korea and Indonesia are set to hold a bilateral aviation talk in June.

According to the government and sources in the aviation industry, there is a consensus between the two governments on expanding traffic rights from the current 23-weekly as well as exploring new air routes, including those departing from provincial airports.

“The results of the meeting are expected to come out somewhat positive,” a transport ministry official told the Korea JoongAng Daily.

Indonesia has long been a popular tourist destination among Koreans.

That has been further bolstered by the recent influx of domestic companies such as Hyundai Motor.

Indonesia is also currently undergoing a capital relocation project. Korea's land ministry announced plans to provide support in areas such as urban development, mobility and smart city initiatives along with private enterprises. These are expected to lead to a surge in business trips to the Southeast Asian country.

So far, only Korean Air and Asiana Airlines have been operating flights to Indonesia. Korean Air and Asiana Airlines have been serving the Incheon-Jakarta route, while only Korean Air has been flying the Incheon-Bali route.

"We will certainly apply for the Indonesia traffic rights," said a spokesperson from T’way. "If there is demand for any travel destination, we will consider operating flights there."

“We are preparing to explore new destinations using the newly introduced B737-8 aircraft in the second half of this year,” a spokesperson from Jeju Air said.

“The Boeing B737-8 can fly over 6,000 kilometers, enabling flights to Indonesia, which take about seven hours,” the Jeju Air spokesperson added.

Currently, the airline's longest route is the flight from Busan to Singapore, which takes around six hours and 40 minutes to travel the 4,500-kilometer distance.

In the past, LCCs were typically associated with short-haul routes to destinations like Japan or China. However, in recent years, low-cost airlines have been expanding their territory by offering long-haul routes to far-flung destinations. This shift has been driven by the growing demand for affordable air travel and the desire to tap into new markets.

T'way Air secured traffic rights for long-haul destinations such as Australia, Croatia, Kyrgyzstan and Mongolia. Last December, the budget airline launched a new route between Incheon and Sydney, marking its entry into long-haul operations after introducing new A330-300 aircrafts. With a range of about 10,000 kilometers and the ability to fly for more than 10 hours, the A330-300 model is capable of reaching not only Australia but also Eastern Europe. Earlier in May, T'way Air launched an Incheon-Singapore route.

Starting next month, Air Premia will begin flights from Incheon to New York, becoming the third airline to operate a New York route following Korean Air and Asiana Airlines. In June, it will also begin a new route to Frankfurt.

International travelers crowd Incheon International Airport on Jan. 18. [NEWS1]

LCCs are trying to diversify their flight routes as short-haul destinations were already a red ocean market even before the Covid-19 pandemic.

“Short-haul routes to Japan, China, and Southeast Asia are already saturated,” the T'way Air spokesperson said. “Many LCCs have resumed operations as the Covid-19 pandemic waned. Now, we are trying to expand our customer base by operating on new routes while enhancing our advantages as LCCs.”

The government expects international passenger traffic to recover to up 76 percent of pre-Covid levels this year. Incheon International Airport Corporation issued a prediction Thursday that the number of international passengers using the airport will reach about 53 million this year. To attract more passengers, airlines are gearing up to introduce larger aircrafts and develop strategies to fly further.

Furthermore, Korean Air is currently in the process of merging with Asiana Airlines. After the acquisition is completed, both of the largest flag carriers will be required to surrender some of their flight slots. This has piqued the interest of budget carriers looking to capitalize on the opportunity.

“In the future, the momentum of the LCC industry is expected to focus on the distribution of long-haul flight routes from the approval of the Korean Air-Asiana merger,” said Cho Chung-hyun, an analyst from Hana Financial Group. “Long-haul routes can also provide revenue diversification opportunities for LCCs in the cargo sector and offer a chance for improving profitability through higher average selling prices.”

Long-haul routes may experience price fluctuations once budget carriers secure traffic rights to these destinations. Currently, flights from Incheon to Bali cost around 1.8 million won ($1,384), but that could significantly decrease.

"The routes that were popular but had limited options have been expensive so far, but if LCCs are introduced and consumers have more options, ticket prices will go down,” an official from an LCC company said.

“When we broke the monopoly of major airlines on the Mongolian route, the average fare dropped by 30 percent,” said the Jeju Air spokesperson.

Prior to 2011, the cost of airline tickets to Guam, for instance, cost approximately 1 million won. When budget carriers were added to the route, ticket prices saw a sharp decline, and Guam airline tickets are currently available for around 350,000 to 450,000 won.

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]