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Declining Korean tourists to Japan prompt LCC changes
June 28th 2019
Rising yen and market maturity possible factors for 5% decline. Read More »
The Korea-Japan market is growing but with changes to the origin balance that should encourage Korean LCCs to internationalize and also prompt adjustments to secondary city routes.
Koreans visiting Japan continue to outnumber Japanese visiting Korea, but Korean visitors to Japan decreased by 4.7% for the first five months of the year despite an increase in flights between the two countries where LCCs have quickly amassed over half of capacity. Most of the LCC representation is from Korea’s crowded LCC market. Korea’s full-service airlines are larger in the market than their Japanese peers.
The Korean LCC market had been worried about sustaining fast growth Japan, but a contraction in Korean passengers had not been expected.
Approximately 159,000 fewer Koreans visited Japan to May 31. This downward trend was more than offset by 300,000 additional Japanese visiting Korea, according to figures from respective tourism offices. Part of that Japanese growth was expected. In the first five months of 2018, an additional 131,000 Japanese visited Korea.
A rising yen is cited as the problem. At the start of the year, 1,000 Korean won was worth about 100 yen. Today the exchange rate is 92 yen per 1,000 won. Some argue there is a loss of perspective because the high percentage difference does not significantly manifest itself in net spending. Further, lower airfares should offset higher costs on arrival.
The yen’s gain also could explain a contraction in visitors from Taiwan (1.4%) and Hong Kong (1.8%). These are Japan’s third- and fourth largest source markets. Korea had been Japan’s largest source market, but has been overtaken by China.
Overall, visitors to Japan increased by 4.2%. Southeast Asia and intercontinental markets grew despite the higher yen, so observers are looking for other causes for the Korean decline. Some point to Korea’s economy, with more price-sensitive travelers going to Vietnam. Korean Air this month added service to a fifth city in Vietnam, Da Lat (see separate story).
A more worrying trend, said Joong Ang, is Koreans feel they have travelled enough to Japan and want to explore other countries. Besides traditional multi-day holidays, some Koreans would make day trips for shopping or eating to Japan, especially if a return airfare, including taxes, was under US$100.
Korean LCCs have largely relied on the outbound Korean sector, making it easy for them to market and tailor products. China is an exception, but the market’s volume and tendency towards group or agency sales meant Korean LCCs did not need to strongly accommodate Chinese passenger needs. Put in a plane and it will be filled.
Larger players, with experience and cash, like Jeju Air, already have internationalized. It was only in recent years some Korean LCCs had websites in local markets. Growing Japanese demand is a surprise boost for start-up Zip Air Tokyo, which will fly Tokyo Narita-Seoul Incheon in 2020.
City pairs may need to be evaluated. Korean LCCs could take a yield hit by discounting in major markets like Seoul-Tokyo. There is some reprieve from lower fuel prices. Flights between Korea’s major cities and Japan’s smaller cities may require the LCCs to improve their visibility in Japan. Also, flights from primary Japanese cities to smaller Korean cities may be unattractive for Japanese, even if they are cheap.
Korea’s crowded LCC market, with new entrants on the way pending final approval, meant it was inevitable the country’s budget carriers would internationalize and improve ancillary revenue. Required changes in the Japanese market will benefit Korean LCCs everywhere else they fly.
