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South Korea clamps down on rogue budget carriers
South Korea will tighten conditions for start-up low-cost carriers in the country “to improve the overall quality of the airline industry with fair competition”, the Ministry of Land, Infrastructure and Transport announced last month. Read More » The new rules will apply from July1 if approved by regulators.
The revised legislation requires airline investors to show they have US$28 million available in current capital and a fleet of five aircraft. The existing requirements are capital of $14 million and three aircraft.
South Korea’s leading LCC, Jeju Air, has 31 aircraft, followed by Korean Air subsidiary, Jin Air, with 25. Government data shows local LCCs control 55.5% of the domestic market and 26% of international flights in South Korea.
The ministry also will remove a benefit that allows an LCC to operate international flights if it has flown 20,000 domestic flights without an accident.
At present, the government can demand a better financial accounting from an LCC if more than 50% of its capital is impaired for three years. The new rules will shorten the period to two years. Licences to operate as an LCC will be cancelled if a budget carrier does not improve its financial performance and structure as ordered by government regulators.
Budget carriers will be allocated traffic rights based on air transportation criteria, which will include flight reliability, to create a fair market. Companies that have contributed to cooperation with countries abroad and practice social responsibility will be given priority in distribution of traffic rights.
South Korea’s budget carriers have resumed expansion in China, a market that has been restricted for them because of geo-political tensions between the two nations. But in recent months relations between China and South Korea have improved in this key market for South Korean carriers.
It has been announced that T’way Air has applied for an initial public offering (IPO) in the second half of this year and that Eastar is considering the addition of its first B737MAX to its fleet.
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