Tuesday, April 11, 2017

Low-cost carrier demand will continue to grow: Boeing

The Korean low-cost carrier market has virtually “no limit” to potential expansion, according to a Boeing executive Friday.

Speaking at a symposium about the global low-cost carrier market at the Conrad Seoul, Boeing’s Managing Director of Marketing for Northeast Asia Darren Hulst did not agree with concerns about the low-cost market reaching a saturation point.

Boeing Managing Director of Marketing for Northeast Asia Darren Hulst speaks at the Conrad Seoul Friday. (Boeing Korea)

“There’s additional destinations that can still be served,” he said. “We will see not only frequency growth, but also brand-new markets that are launched because of airplane capabilities and demand in the marketplace. With low fares and efficient costs, there’s a tremendous amount of expansion that is possible.”

The greatest growth driver of all will be demand for Chinese routes, Hulst said, calling the recent dip due to political tensions between Seoul and Beijing a “short-term” challenge.

“The demand that’s potentially there in China is in both directions. There’s plenty of demand for Koreans to travel to China, but there is so much outbound traffic demand in China that has yet to be satisfied, because of the tremendous growth of middle classes in China,” he said. “Once these restrictions are removed and we see more of a deregulated market, there will be an explosion of growth that will last for decades.”

Even in the short term, Hulst noted that the number of seats provided by low-cost carriers in Korea has grown at an average rate of 20 percent over the past six years while that of full-service carriers grew at an average rate of 2 percent.

“As of the end of 2016, one-third of domestic and regional Asia capacity now belongs to low-cost airlines,” Hulst said. “In the recent two-year period especially, the key driver of this growth has been LCCs expanding internationally.”

According to data presented by Hulst, seats offered by Korea’s low-cost carriers to domestic destinations grew by 3 percent between 2015 and 2017, while the total number of seats grew by 59 percent. In particular, capacity to international destinations in Japan, Southeast Asia and the Pacific more than doubled over this period.

This quick growth in the low-cost carrier market is especially important to aircraft manufacturers like Boeing because of the growth in their fleets. Currently, Korean Air has added two planes since April last year, while Asiana Airlines’ fleet has decreased by one in the same period. Meanwhile, low-cost carriers have increased their fleets by a total of 24 planes.

“LCCs are responsible for all of the aviation fleet growth in Korea in the past year,” Hulst said. Many LCCs are currently flying Boeing’s 737 NGs in their fleets, with the plane maker hoping to launch the upgraded 737 Max here this year.

By Won Ho-jung (hjwon@heraldcorp.com)

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