Intense competition in S.Korea's LCC sector fuels zero-won tickets

South Korea's low-cost carriers (LCCs) since last month have waged an intense competition with the recovery of the overseas travel market.

They boosted the number of international flights to meet surging demand, but the number of passengers fell due to factors such as the economic slowdown and the sector's off-season in the second quarter.

One LCC has even resorted to one-way "zero-won tickets" to popular destinations such as Japan and Vietnam, with a passenger needing to pay just the fuel surcharge and airport service fees.

The Ministry of Land, Infrastructure and Transport on Monday said the combined number of flights to Japan and Southeast Asia by South Korea's top three LCCs -- Jeju Air Co., Jin Air and T'way Air Co. -- rose from 1,998 in December last year to 2,334 in March this year. Over the same period, however, the number of overseas travelers went from surge to slump.

The number of travelers going abroad rose from 1.39 million in December last year to 1.78 million in January this year, but fell to 1.72 million in February and 1.47 million in March. Two major tourism companies also saw a drop in March sales, with the number of travelers buying products from Hana Tourist Inc. dropping 18% from February and that from Modetour Network Inc. 8%.

The country's LCCs raised the number of short-distance flights in anticipation of recovery on the overseas travel market, but reduced demand has led to fierce competition in the sector.

A leading example is Air Seoul's launch last month of a "zero won air ticket" in which a passenger pays just the fuel surcharge and airport service fee. This offer applies to flights from April 19 to July 20 to Tokyo, Japan; Da Nang and Nha Trang, Vietnam; and the Philippine resort island of Boracay.

Jeju Air is offering many one-way tickets to Japan, Vietnam and Taiwan for under 100,000 won ($75). Through its "JJ Members Week" next month, the company will sell a ticket to Fukuoka, Japan, for around 60,000 won and one to Taipei, Taiwan, for around 100,000 won.

With the second quarter an off-season for overseas travel, the travel industry says this intense LCC competition will continue for some time.

"With the start of the first school semester and various exams, we've entered a period of declining demand for family travel," a tourism industry source said. "Because of signs of contracting travel demand due to the economic slowdown, competition for discounted airfares in the LCC sector will escalate."

LCCs are turning to mid- to long-haul routes to reduce exposure to the intense short-route competition and improve profitability and financial soundness. An emerging target of this campaign is Indonesia.

The archipelago has many resort areas led by Bali but few airlines connecting them with South Korea. Korean Air Lines Co. and Asiana Airlines Inc. are South Korea's only carriers with flights linking both countries.

Growing demand for business trips is another reason for LCCs to eye Indonesia. For example, Hyundai Motor Co. last year completed construction of an electric vehicle plant in the country and food service companies like SPC and CJ Foodville are expanding their franchises there.

South Korea's first LCC to open a route to Indonesia after most COVID-19 regulations were scrapped was Jeju Air. From May 18, the carrier will offer chartered roundtrip flights to Manado and Batam, two leading tourist destinations in Southeast Asia's most populous country.

"If LCCs offer mid- to long-distance routes, they can plan for improved profitability through diversification," a Jeju Air source said.

Write to Mi-Kyoung Lee at capital@hankyung.com