(News Focus) Korean budget carriers forecast to suffer tough times

SEOUL, Oct. 23 (Yonhap) -- South Korean low-fare carriers are likely to suffer severe hard times at least over the next one year due to a sluggish economy and a continued fall in demand for air travel, analysts say.

On Friday, Hansung Airlines, one of South Korean budget carriers, suspended
flight services on its two domestic routes because of its cumulative deficit and
its funding failure.
"Hansung Airlines' suspension of flight services resulted from the fallout from
the U.S. financial turmoil and fluctuations in jet fuel prices and exchange rate.
Other low-fare carriers may face the same sufferings over the next one year due
to an economic slump if they fail to raise funds,"said Park Eun-gyung, an analyst
at Samsung Securities Co.
"If, however, South Korean low-cost carriers begin launching short and mid-haul
overseas flights, they will turn themselves around as the routes are lucrative,"
Park said.
New local carriers are required to satisfy the legal requirements to fly overseas
routes, which obliges them to offer over 10,000 domestic flights without
accidents for at least one year.
As of October, three budget carriers--Jeju Air Co., Jin Air Co. and Yeongnam Air
Co.-- offer flight services on domestic routes, with Jeju Air opening its first
international route, to Hiroshima, Japan in July.
Air Busan, Eastar Jet and Kostar Airlines are planning to launch services within
this year, while Incheon Tiger Airways is preparing to fly domestic routes next
year.
All budget carriers providing flight services have suffered losses, according to
industry data.
Jeju Air posted a loss of 39.8 billion won (US$29.2 million) between 2006 and the
first half of the year and Hansung Airlines recorded a 27.2 billion won deficit
during the same period.
The average passenger occupancy rate of Jin Air and Yeongnam Air, which started
offering flight services in July, has been below 50 percent so far this year.
"All discount carriers have difficulties in gaining funding but Jin Air and Air
Busan may find it easier to raise funds as they have parent companies," said Song
Jae-hak, an analyst at Woori Investment Securities Co.
Jin Air is a wholly-owned unit of Korea Air Lines Co., the nation's biggest
carrier and Air Busan's controlling stake is acquired by No. 2 player Asiana
Airlines Inc.
"The polarization among the local discount carriers will deepen over the next
year," Song added.
Low-cost airline markets in the Asia-Pacific region have been growing at a faster
clip thanks to increasing liberalization of air transport and continuous economic
growth since 2002.
The North Asian triangle of South Korea-China-Japan, to be set up by open skies
agreement in 2010, may generate an extra 300 million travelers, according to the
projections of the Center for Asia Pacific Aviation, a provider of independent
aviation market intelligence in the Asia-Pacific region.
South Korea and Japan reached an open skies agreement in August 2007 under which
their flag carriers can freely increase flights between the two countries, but
Japan did not open up flights to Tokyo. In June 2006, South Korea opened its
skies to China, which liberalized routes only to cities in eastern Shandong