[THE INVESTOR] South Korea’s Ministry of Land, Infrastructure and Transport said on March 12 that it would revise the current law to strengthen entry criteria and management requirements to put the brakes on expanding low-cost carriers.
“We came up with the revision to make LCC-related regulations more realistic, aiming to improve the overall quality of the airline industry with fair competition,” said a ministry official.
If the revision is passed by related organizations, legislative authorities and at a Cabinet meeting next month, the revision will take effect from July, the ministry said.
According to the revision, an airline must have current capital of 30 billion won ($28 million) and five aircrafts to apply for an operation license as a LCC, compared to the current requirement of having 15 billion won of capital and three aircrafts.
Industry insiders say that LCCs normally make profits once they have six to eight aircraft for service.
Jeju Air, the industry’s No. 1 in terms of sales with 996 billion won as of last year, has 31 aircraft, followed by Jin Air with 25 aircraft. Jin Air, a subsidiary of Korean Air under Hanjin Group, recorded sales of 888 billion won in the same period. Asiana’s LCC brand Air Busan and T’way Air are competing for third place.
Government data showed that LCCs now make up 55.5 percent of the domestic flight market, up by 270 times compared to 13 years ago when the first domestic flight by T’way Air was launched in 2005.
As of 2017, LCCs comprise 26 percent of international flights departing from Korea, a 500 percent increase compared to 2008 when Jeju Air first launched overseas flights.
The ministry will also abolish a system that allowed a LCC to run international flights if the company makes 20,000 domestic flights without an accident.
The revision will help airline companies to be competitive in entering the LCC market and operate their businesses with safe and quality service. It will also prevent companies from becoming financially distressed, the ministry added.
The ministry will also strengthen the management of current LCCs.
The current law stipulates that the government can only intervene to order financial improvement when more than 50 percent of capital at a LCC is impaired for three years. This, however, will be shortened by two years.
The operation license could be cancelled if an airline does not improve its financial structure, even after receiving an order from the ministry.
The ministry will also allocate traffic rights between LCCs based on air transportation criteria, which includes flight reliability, to create a fair market structure. Companies that have contributed to cooperation with countries abroad and practice social responsibility will be given privileges in the allocation of traffic rights, it added.
By Kim Da-sol/The Korea Herald (email@example.com)