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Bumpy ride ahead for besieged Korean airlines

Aug 08,2019
Korean airlines are facing turbulent times as Emirati airlines push to expand their foothold in Korea and flights to Japan begin to decline.

Government officials from Korea and the United Arab Emirates (UAE) started a two-day meeting Wednesday in Abu Dhabi, UAE, to discuss whether to increase the number of flights between the two countries.

While last year’s meeting on the same issue fell apart, local airlines are closely monitoring how discussions go this time as the decision could greatly affect sales of long-haul routes to Europe operated by full service carriers in Korea.

The major reason behind the UAE airlines’ request to increase flight frequency is to attract more Europe-bound travelers from Korea with cheaper flights involving a layover in Dubai or Abu Dhabi.

UAE officials are requesting Korea to double the number of Emirati flights flying out of Incheon International Airport. Currently, Emirates operates flights connecting Incheon and Dubai once per day, while Etihad Airways flies once per day between Incheon and Abu Dhabi.

The only local carrier offering flights to UAE is Korean Air, which operates flights connecting Incheon and Dubai once per day.

Sources from Korean airlines say that increasing flight frequency will benefit Emirati airlines by letting them make Dubai and Abu Dhabi hubs that offer connecting flights to Europe and Africa.

“Passengers Korean carriers can serve are mostly those leaving from Korea to the UAE, but increasing frequency won’t be much benefit for us because there are not many UAE-bound travelers,” a source from Korean Air said. “Emirati airlines will try to create more transfer demand by offering flights to Europe via Dubai or Abu Dhabi at cheaper costs.”

Industry sources worry that Emirati airlines will use their considerable funds to win over fare competition with local carriers on long-haul routes to Europe once they earn a green light to fly more frequently out of Incheon to UAE airports. The airlines are reported to be heavily subsidized by the UAE government.

The CEOs of American Airlines, Delta Air Lines and United Airlines wrote in a letter to USA Today last month that “UAE and Qatar have violated trade agreements with the United States by funneling over $50 billion in subsidies into their government-owned airlines - Emirates, Etihad Airways and Qatar Airways.”

The CEOs argued that state subsidies are “destabilizing the global airline industry.”

A source from Asiana Airlines said that while the Emirati airlines could offer flights on long-haul routes at cheaper costs initially, they may raise costs in the long term when local airlines fall out of competition on European routes. This could then damage customer benefits.

The result of the bilateral talks will likely come out today.

Even without the potential threat from Emirati airlines, local airlines have been suffering recently due to slowing demand for flights to Japan affected by the ongoing diplomatic trade dispute.

Asiana Airlines announced Wednesday that it decided to temporarily suspend a thrice-weekly flight connecting Busan with Okinawa from Aug. 23. The company said the decision comes largely due to low demand. While the airline announced plans to downsize planes used on major routes to Japan last week, it is the first time it has decided to suspend a flight to Japan.

As of the first quarter of this year, flights to Japan accounted for roughly 14 percent of Asiana’s revenue from its passenger flight business, according to the airline’s quarterly report. That percentage is likely to be reduced in the July-September quarter, according to an Asiana source, as booking rates for Japan fell significantly after July.

Jeju Air, Korea’s largest low cost-carrier (LLC), also announced Wednesday that it reduced flight frequency on routes from Incheon to Japan’s Tokyo, Nagoya, Sapporo, Fukuoka and Okinawa as well as routes from Muan County, South Jeolla to Tokyo, Osaka and Busan to Osaka and Fukuoka starting as early as Aug. 25 through Oct. 26.

“We decided to reduce flights on unprofitable routes, including major routes to Japanese destinations,” a spokesperson from Jeju Air said.

Japanese routes used to account for 25 percent of Jeju Air’s revenue.

While other LCCs like Eastar Jet and T’way Air have already announced plans to cut down on flights to Japan, carriers that were more dependent on those routes are struggling to figure out a way to diversify demand.

Air Seoul, a budget airline subsidiary of Asiana Airlines, earns roughly half of its revenue from Japanese routes. It has not yet announced plans to reduce flights to Japan.

“We will reduce flights to Japan, but we are still discussing which Japanese routes to adjust,” a spokesperson for Air Seoul said. “We are currently offering promotions on flights to Southeast Asian countries.”

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]