South Korea’s domestic air travel market is expected to shrink by mid-2020 as 80 percent of the country’s population will have access to high-speed-rail (HSR), an increase of 25 percent.

The segment will be fragmented further in 2021 when three new low-cost airlines (LCCs) Aero K, Fly Gangwon (FGW) and Air Premia (APM) commence operations. The carriers were issued licenses by the Ministry of Land, Infrastructure, and Transport (MLIT) in Seoul early this year.

The LCCs have to apply for the air operator certificate (AOC) within a year of being issued the license and commence operations within two years. Applying for the AOC is only a formality.

Six LCCs  (Jeju Air, Air Busan, Air Seoul, Jin Air, T’way Air, and Eastar Jet) are already in operation and hold a combined 58 percent market share. Korean Air and Asian Airlines hold the remaining 42 percent.

According to an MLIT official, the new licenses were issued based on a market study carried out over six months in 2018 which revealed there was still potential for growth. Based on the United Nation’s May 2019 estimates, South Korea’s population is 51.4 million.

The congested market has already claimed its first victim in Air Pohang. The airline, based at Pohang Airport and owned by Dong Hwa Electronics (DHE), started operations in February 2018. It grounded both of its Bombardier CRJ 200s nine months later, citing plans for a relaunch in the first quarter of 2019 with three 737-800 jetliners. That was as far as the plan went.

A DHE official who wanted to be identified only as Lee acknowledged that it was difficult operating with only two routes, Gimpo and Jeju. Lee said it will be more competitive to operate with HSR expanding its network and more LCCs joining the fray.

“It will be no surprise should any of the new LCCs not apply for the AOC due to the stiff competition and the shrinking market size,” Lee pointed out.

Air Pohang was one of the six LCCs that were initially issued the license in 2015 and the only one that applied for the AOC. Plans of the other five; Fly Yang Yang, K-Air Airline, Air Daegu, Nambu Air, and Prime Airline fizzled out, anticipating turbulent weather in the market. High-speed rail has affected air travel since it was introduced in 2004, reducing traffic at regional airports.

Numerous Airports

Of the three new LCCs Air Premia is likely to have the edge in terms of operations as it will be based at Incheon International Airport, Aero K at Cheongju International Airport (CIA), and FGW Yangyang International Airport (YIA).

Currently, 10 of the 15 airports in Korea have been in the red continuously: Gunsan Airport, Sacheon Airport, Pohang Airport, Ulsan Airport, Wonju Airport, Yeosu Airport, Gwangjiu Airport, Muan International Airport (MIA), YIA, and CIA. Unnecessary construction of certain airports and airline operating routes with poor passenger loads have resulted in financial strain on the carriers. Some of the airports were built due to over-projection by government officials.

YIA in Gangwon province opened for operations in 2002, but there was no passenger movement in the first six months. Due to continuous poor passenger traffic, it ceased operations in November 2008. There were calls to either close or sell it, but both proposals were shot down. It reopened in December 2010 but has not performed any better since. In 2018, it handled 37,000 passengers against a handling capacity of 3.5 million.

The MLIT official reckons more people are expected to use high-speed rail over air travel, as it is more convenient and fares are 20-25 percent lower.