Asiana makes the jump into low-budget airlines

February 15, 2008

With Asiana Airlines’ decision to throw its hat in the low-budget airline ring and go head-to-head with top rival Korean Air, a tough year is expected in the nation’s already overheated budget airline market. Asiana, the nation’s No. 2 airline, said yesterday in a release that it has become the biggest shareholder of Busan International Air, or BIA, by acquiring a 46 percent stake, which is worth 23 billion won ($24.3 million). Asiana purchased a controlling stake in BIA in order to minimize risk, the release said. BIA was launched last August by the city of Busan and local businessmen. With the acquisition, Asiana plans to launch a budget airline by the end of this year. Korean Air, Asiana’s top rival, announced recently that it will launch a low-budget carrier called Air Korea starting in May. Asiana will face competition this year from Hansung Airlines and Jeju Air, the nation’s two existing budget airline operators, for short-route international flights, according to industry experts. The two budget airlines gained approval from the Ministry of Construction and Transportation to launch international routes after they met the requirement of operating only domestic flights for two years.Three additional airlines ―Incheon-Tiger Airways, Yeongnam Air and Daeyang Air ― are set to enter the budget carrier market in 2009.“It was a tough decision, but we had to respond to rapidly changing market conditions,” Kumho Asiana Group Chairman Park Sam-koo told reporters during a press conference at Busan City Hall yesterday. “Extreme price competition is expected as the market is becoming overpopulated. This might make people wonder whether budget airlines are safe or not,” said Kim Jin-sung, an analyst at Kyobo Securities. “In that sense, Asiana Airlines and Korean Air will have the right end of the stick because the companies have more experience than other small airline companies.” Kim also predicted a bright future for budget airline carriers despite harsh competition. “As the national income grows, more people want quality leisure time. Despite some negative factors such as high oil prices, the future of low-fare carriers is bright.” By Sung So-young Staff Reporter [so@joongang.co.kr]