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South Korea to amend law to keep expansion of low cost carriers in check

South Korea’s Ministry of Land, Infrastructure and Transport has announced that it would be amending existing regulations to fortify entry criteria and management requirements to keep the expansion of low cost carriers (LCC) in check.

“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,” remarked a ministry official.

If the revision is ratified by related organizations, legislative authorities and at a Cabinet meeting slated for next month, the amendment would take effect beginning in July.

The proposed revision stipulates than an airline must have current capital of 30 billion won ($28 million) and five aircrafts to be able to apply for an operation license as a LCC. This is compared to the present requirement of having 15 billion won of capital and three aircrafts.

Industry experts explained that LCCs begin to rake in profits once they have anywhere between six to eight aircrafts in service.

Jeju Air, the industry’s top LCC in terms of sales with 996 billion won as of last year, holds 31 aircrafts. Jin Air follows them with 25. Jin Air, which is a subsidiary of Korean Air under Hanjin Group, had documented sales of 888 billion won in the same period. Asiana’s LCC brand Air Busan and T’way Air are neck-to-neck for third place.

Government figures indicate that LCCs comprise 55.5% of the domestic flight market – up by 270 times compared to a little over a decade ago when the first domestic flight by T’way Air was initiated in 2005.

As of 2017, LCCs make up 26% of international flights flying from from Korea, a 500% rise compared to figures in 2008 when Jeju Air first launched overseas flights.

The ministry would also be removing a system that lets LCC run international flights if the company makes 20,000 domestic flights without a single accident.

The amendment would aid airline firms to be more competitive in penetrating the LCC market and operate their businesses with safety and quality in mind. It would also keep companies from becoming financially distressed, the ministry said.

The ministry is also looking to bolster the management of current LCCs.

The present law specifies that the government can only step in to order financial progress when more than 50% of capital at a LCC is impaired for three years. This, however, would be reduced by two years.

The operation license could be abolished if an airline does not improve its financial standing, even after receiving a specific memo from the ministry.

The ministry would also allocate traffic rights between LCCs based on air transportation criteria, which includes flight consistency, to make a fair market structure. Companies that have done their part to cooperate with countries abroad and practice social responsibility would be given special perks in the allocation of traffic rights, the ministry added.

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