Korea Blocks Foreign Companies from Airline Joint Ventures

 - May 14, 2014, 10:47 AM
South Korean airline T'way is one of five low-cost carriers that account for almost half of the country's domestic traffic. (Photo: Flickr Daniel Betts)

The South Korean government has prohibited the country’s airlines from setting up low-cost joint-venture operations with foreign carriers. This week’s order from the Ministry of Land, Infrastructure and Transport (MLIT) came in response to demands by some local low-cost carriers (LCCs) that the domestic market deserves protection from foreign-backed competition.

According to MILT senior official Kim Jung Rak, some Korean low-cost airlines are aware that an Asian budget carrier has started negotiations with a Korean company to start a new joint-venture operation based in the city of Jeju. He declined to identify either of the parties involved. “We understand that the plan is only in the negotiation stage as no application has been made to the ministry for an air operator certificate,” he said. The new MILT ban has effectively terminated those negotiations. “Korean carriers are conservative and protective of the local market and they feel that any encroachment by a foreign carrier would not only be unfair but also crowd it,” said Kim.

Currently five LCCs command a combined 42.2-percent share of the Korean domestic market, while Korean Air and Asiana Airlines share the remaining 57.8 percent. The LCCs include Jin Air, a wholly owned subsidiary of Korean Air, Jeju Air, Eastar Jet, T’way Air and Air Busan, which is part of Asiana Airlines. The airlines also operate international flights to China, Japan and various destinations across Southeast Asia.

In 2008, several Korean airlines blocked plans by Singapore-based Tiger Airways to establish a joint-venture operation with local company Incheon City Municipal. Korean authorities initially indicated they would approve the move, but then delayed issuing an air operator certificate to the extent that the prospective partners dropped the plan.