New LCC
As Asiana Airlines is preparing to launch Air Seoul, a new low-cost carrier (LCC) service, all eyes are on whether the company will be able to achieve its initial goal of improving the profitability.
According to the Ministry of Land, Infrastructure and Transport (MOLIT) and industry sources on March 7, the preliminary evaluation of an air operation certificate (AOC) for Air Seoul is currently in the final stage.
Asiana Airlines is scrambling to establish its LCC subsidiary in order to improve its showings, which have been plunging from 2013. The company posted 95 billion won (78.84 million) in operating profits last year, down 3.1 percent from 98.1 billion won (US$81.41 million) in 2014. In particular, its operating profits have dropped sharply from 348.4 billion won (US$289.13 million) in 2011 to some 90 billion won (US$74.69 million) in the past two years, though its sales have remained at the similar level from 5.7 trillion won to 5.8 trillion won (US$4.73 to 4.81 billion) every year since 2011. For net profits, the company recorded deficits of 63.3 billion won (US$52.53 million) in 2014 and 81.5 billion won (US$67.63 million) last year. Accordingly, Asiana Airlines plans to secure the competitiveness by transferring its large fixed costs to LCC and lowering its ticket prices at the moment when there is a low demand for short flight services.
Most air routes, which Asiana Airlines will transfer to Air Seoul, are short flights to Japan and China. The company filed an AOC with the MOLIT for its unpopular routes of Incheon International Airport to Japan’s Toyama, Kumamoto and Matsuyama Airports.
The occupancy rate of these routes stood at some 60 percent last year. Asiana Airlines is planning to reduce its losses by transferring these unpopular and deficit routes to Air Seoul, but Air Seoul will have to struggle to make profits with these unpopular routes.