Tuesday, 20 May 2008 : Record fuel prices are not dampening the enthusiasm for low cost carrier (LCC) expansion in North Asia.
Air Korea, the budget unit of Korean Air, has confirmed plans to launch services in Jul-08. It will be initially focused on short-haul routes with a fleet of three B737-800s by the end of 2008. Two A300-600s will be added next year to commence services to Southeast Asia, including Thailand. Independent Incheon Tiger Airways is working towards its planned launch later in the year, while Asiana Airlines is also preparing its LCC offshoot.
Meanwhile, Jeju Air has taken delivery of its first B737-800 (a former SpiceJet aircraft) as part of its push into international markets. A second B737-800 will be added next month. The airline will initially operate charter services to the Japanese cities of Hiroshima, Kitakyushu, and Kochi from Jul-08, to take advantage of stronger package tour demand from Japan as the Korean won depreciates against the yen. By avoiding the main gateways of Tokyo, Osaka, Nagoya, and Fukuoka, Jeju is aiming to avoid going head-to-head with the major carriers, but yields will be weaker as a consequence. Jeju Air has been unprofitable since its launch two years ago and reportedly aims to raise another USD40 million by the end of next month.
In Japan, Skymark and Starflyer have reported improvements in their underlying businesses in the past six months and are quite optimistic regarding their prospects in the year ahead, despite the weak domestic market and high fuel prices.
Internationally, some major changes are imminent, with AirAsia X confirming plans to launch services to Japan next year, identifying Ibaraki (100km northeast of Tokyo, slated to open in Mar-2010), as well as Fukuoka and Nagoya as possible destinations. Rival Jetstar already serves Japan and today announced plans to operate its daily Sydney-Osaka A330 services via the Gold Coast on the return leg, replacing Brisbane, from 01-Oct-08. The Qantas Group recently foreshadowed some Japan services could be switched to Jetstar in the future.
All Nippon Airways plans to form a low-cost airline in Asia as early as this financial year, to prepare for the massive increase in slots at Tokyo’s Haneda and Narita airports from 2010.
In China, several airports are opening new dedicated budget airline facilities. The first one opened at Zhengzhou Airport in the Central province of Henan less than two months ago, while Xiamen Airport, located on the Taiwan Strait, plans to open a dedicated LCC terminal (an adapted former cargo facility) later this year.
Taiwan meanwhile remains a massive LCC opportunity waiting to be tapped, with the launch of weekend charters from Jul-08 across the Taiwan Strait set to unleash much-needed traffic growth for Taiwan’s airlines. Those services are set to become daily from late 2008 and installed as scheduled operations from 2009. The one-hour charter flights, serving a massive Taiwanese diaspora in the Mainland (plus rising tourism from the Mainland) bears all the hallmarks of a massive future LCC market. Unsurprisingly, Jetstar has been sniffing around for opportunities, including a look at the recently defunct Far Eastern Air Transport.
North Asia is the next big LCC frontier. The advance search parties believe they have spotted extremely fertile ground.