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China and Korea expected to add traffic rights
April 4th 2019
LCCs a beneficiary as routes can have more carrier competition. Read More »
China and Korea are expected to add traffic rights this year. Seoul is expected to mostly allocate the traffic rights to LCCs since past allocations have mostly gone to full-service airlines.
Korea’s large LCC market has avoided consolidation mostly due to the prospect of more traffic rights and eventual liberalisation with China. That would usher in growth on a scale that some airlines say they cannot even fathom. While some of Korea’s LCCs have gone through weak or tumultuous periods, that is a small part of history compared to a large change in dynamics expected from future growth. A seemingly weak or second-tier Korean carrier that has the right China strategy could quickly take top place in Korea’s LCC sector.
In addition to an increase in capacity, multiple airlines will be allowed to serve the same route. Previously only major destinations, like Beijing and Shanghai, saw service from more than one airline from each side.
Air Busan, Eastar Jet, Jeju Air, and T’way are expected to be the main beneficiaries of traffic right allocations. Notably absent are Air Seoul and Jin Air. Air Seoul is thought to be too young and small to receive traffic rights. Jin Air may not be allocated traffic rights as part of ongoing regulatory punishment.
Traffic right allocations earlier this year for services to Singapore went to Eastar and Jeju. That award was partially based on Eastar running charters to Singapore to demonstrate its willingness to continue service if allocated traffic rights.
Eastar and other Korean LCCs have prolific charter networks to mainland China. This is mostly for revenue opportunity, but industry observers say the LCCs have long been thinking they need to show their seriousness.
The China-Korea bilateral used to allow for a generous charter programme that Korean LCCs successfully exploited to be quasi-scheduled services. Restrictions were subsequently put in place.
Only Shandong and Hainan provinces have open skies with Korea. Some observers expect China will not agree to country-wide open skies with Korea until there is China-US open skies. Giving Korea open skies would allow Korean carriers, on paper, to grow China-US traffic using respective open sky agreements.
