The government’s decision to license three new budget carriers will have both positive and negative impacts on the nation’s air service industry. Government and industry officials ought to minimize the negative impacts.
Basically, free entry into an industry should be guaranteed in a market economy. The air industry should be no exception, and the government has been doing a good job of expanding competition in the sector.
The government broke Korean Air’s monopoly in the air industry in 1988 by allowing the entry of Asiana Airlines as the second national flag carrier.
Besides the two full-service carriers, or FSCs, the government has granted licenses to six low-cost carriers, or LCCs, in recent years. The entry of three newcomers -- Fly Gangwon, Air Premia and Aero K Airlines -- will certainly heat up competition in the already crowded industry.
Though it is crowded, competition in the no-frills flight market has been lopsided, mostly because one of the six carriers is owned by Korean Air and two by Asiana Airlines. It would be good if the addition of the three independent carriers lessened the dominance of the two large airlines.
The growing demand in the industry is a major reason cited by government officials for allowing the entry of the three budget carriers. The number of air travel passengers in 2018 increased 7.7 percent from the previous year, and the author of a research paper predicted that the number would rise to 94 million in 2019 from 77 million in 2017.
Indeed, more South Koreans are going abroad, especially for sightseeing, which has led to a boom in the low-cost air travel market. Budget carriers accounted for 29.2 percent of passengers who went abroad on Korean airlines last year, up from 26.4 percent in 2017 and 11.5 percent in 2014.
Like the six carriers in operation, the three new entrants are regional, which will help people living in their vicinities get easier access to international flights.
Officials said Fly Gangwon, based in Yangyang, Gangwon Province, plans to have 25 international routes connecting the eastern coastal city with airports in countries like China, Japan and the Philippines.
Aero K, based in Cheongju, North Chungcheong Province, plans to operate flights on 11 routes between the central city and destinations mostly in China, Japan and Vietnam. The third company, Air Premia, based in Incheon, has set its sights on nine medium- and long-haul routes -- to the US, Canada and Vietnam.
The prospects for the three carriers are not all bright, however. Most of all, there are concerns about an oversupply in the market. Experts point out that 11 airlines -- two FSCs and nine LCCs -- are likely too many for Korea.
Regarding the budget travel industry, a simple comparison shows how outsized the Korean market is. The US has 10 budget carriers, China has seven, Japan and Germany have five each, and there are only four in the United Kingdom.
Besides, think about the 10 foreign budget carriers already flying to and from Korea, including those from nearby Asian countries -- Japan, Vietnam, Malaysia, the Philippines and Singapore. There will be more in years to come.
On top of tough competition, the Korean airlines should brace for the shortage of manpower, particularly pilots and maintenance engineers. Industry officials say given the ever-growing number of flights, the Korean airline industry needs at least 600 new pilots a year, but only about 450 newly trained pilots are joining the workforce.
This is one of the many reasons authorities ought to make sure the new licensees secure all the necessary personnel before they are given the air operator certificate -- which is due in one year if everything goes well -- and are allowed to make their maiden flights, expected in two years.
Needless to say, the government should not issue any more licenses for the time being.