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Budget carriers becoming established players.

Korea's budget carriers -- once a non-factor in the airline industry -- are now expanding their presence against much larger and older airlines.

Some budget airlines are seeking to go public -- a barometer of financial soundness -- to create a new growth engine; while the low-cost carrier (LCC) sector is seeking to make inroads into the long-haul segment that has been mainly dominated by the major carriers.

In addition, they reported record-high earnings from last year -- some of them posting better operating margins than their larger competitors.

Plus, scandals involving Korean Air scions' abuse of power are becoming an extra help in the LCCs gaining positive recognition from the public.

"As more people are going overseas, budget carriers' cost structures are stabilizing," said Korea Investment and Securities analyst Choi Go-woon.

"Amid lingering challenges such as rising oil prices and China's anti-Korean sentiment, they are showing they can continue to grow."

There are six budget carriers in operation in Korea. They are Jeju Air, Jin Air, Air Busan, Air Seoul, Eastar Jet and T'way Airlines.

More than anything, the biggest headline among the budget carriers is whether to list their shares on the country's main bourse KOSPI.

Currently, Air Busan and T'way are expected to carry out IPOs following those of Jeju Air in 2015 and Jin Air in 2017.

Eastar, gaining recognition under the Moon Jae-in administration thanks to its involvement in inter-Korean exchanges, is also preparing for an IPO next year.

Market observers say the growing IPO rush by the LCCs is aimed at raising massive funds that will contribute to improving their financial status and the purchase of mid- to large-sized aircraft as part of efforts to secure future growth.

"We will seek to boost our financial soundness via an IPO," said CEO Jeong Hong-geun. Air Busan CEO Han Tae-geun has said an IPO is the principle means for a company's investment and growth.

"Although the LCC market is rapidly growing, competition is getting fiercer and they are faced with the difficult task of securing additional growth," said a brokerage house analyst.

"In that respect, low-cost airlines are trying to raise money for investment."

Also, the local budget carriers have set their sights on servicing long haul routes to vie with major airlines such as Asiana Airlines and Korean Air.

According to industry sources, a few LCCs are considering introducing the Boeing 737 Max for longer routes.

Jeju Air CEO Lee Seok-joo said late last month his company was considering adding the Boeing aircraft to its fleet as early as the second half of 2018 in a bid to expand international services.

"We will be able to fly it on medium routes by the second half of the year at the earliest," said Lee Seok-ju, Jeju Air director, during a recent press conference.

T'way is considering introducing the aircraft to advance its flight services and better meet customer demand.

The Boeing 737 Max, produced to meet the demands of LCCs, can carry up to 210 passengers with a maximum range of 6,510 kilometers.

The introduction of the Boeing jet is expected to service passengers who want to travel to Singapore, Indonesia, Malaysia and other Central Asian countries.

The 737 Max is the same size as the 737-800 model. It can carry up to 210 passengers and fly a maximum 8 hours, covering up to 6,510 kilometers.

For the LCCs, 2017 is likely to go down as an "unforgettable year," thanks to their record earnings.

The six budget carriers reported a combined operating income of 269.4 billion won ($251 million) in 2017, nearly double the previous year's 144 billion won. Their combined revenue also increased from 2.67 trillion won to 3.63 trillion won during the same period.

The combined operating margin -- a measure of profitability -- stood at 7.41 percent, up from 5.38 percent in 2016.

Jeju Air ushered in the era with the LCC chalking up more than 100 billion won for a full-year operating profit, at 101.3 billion won.

In addition, Jin Air and Jeju Air saw their respective operating margins surpassing the 10 percent mark -- 10.9 percent and 10.2 percent -- compared with Korean Air's 8.1 percent and Asiana Airlines' 4.3 percent.

"The number of passengers using budget carriers for overseas trips increased by 41 percent from the previous year, while those from major airlines declined by 1.9 percent," said an official at the Ministry of Land, Infrastructure and Transport.
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Publication:The Korea Times News (Seoul, Korea)
Geographic Code:9SOUT
Date:Apr 18, 2018
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