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Korean Air says to launch budget carrier in 2008
SEOUL (Reuters) - Top South Korean carrier Korean Air <003490.KS> said on Monday it will set up a budget carrier next year with a 20 billion won ($22 million) investment, a move which will tap rising international travel.
The announcement comes after Tiger Airways, a low-fare airline partly-owned by Singapore Airlines <SIAL.SI> said earlier this month that it would start a new Korean budget airline in a joint venture with the port city of Incheon. South Korea's main international airport is close to the city.
Shares at Korean Air reacted positively, rising more than 7 percent.
"Korean Air and Air Korea, a separately operated subsidiary will complement each other for a win-win relationship," the company said in a statement.
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"Korean Air will concentrate on upper class business travel demands and Air Korea shall focus on travellers seeking shorter distance leisure travel routes."
The new unit will begin operation in May 2008, opening flights to Shandong and Hainan Provinces in China and to Japan except Tokyo, as well as Thailand and Malaysia.
It gradually plans to widen its network to other short- or mid-distance destinations.
For operations, the low-cost carrier will secure three Airbus <ARBU.UL> A300s and two Boeing <BA.N> B737s, which are short- to medium-range aircraft.
Maintenance and operation training will be outsourced to Korean Air.
Airline analysts, however, say it is difficult for carriers to successfully set up a low cost-airline within an airline because the two entities often end up competing against each other.
Shares at Korean Air jumped 7.86 percent to 70,000 won by 0143 GMT, outperforming the wider market's <.KS11> 2.97 percent rise.
($1=908.9 Won)
(Reporting by Kim Yeon-hee; Additional reporting by Jon Herskovitz; Editing by Keiron Henderson)
