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Japan's low-cost Peach Aviation may ignite Asia airline price war

The Korea Herald/Asia News Network -- Korea's low-cost airlines are girding for fierce competition in the skies as Japan's Peach Aviation is racing to launch a new route to Seoul, seeking a slice of a budget travel boom in Asia's fourth largest economy.

With the number of cost-conscious tourists surging, budget carriers are increasingly steering abroad in a bid to offset high jet oil prices and prop up their balance sheets.

Osaka-based Peach is the latest in a string of no-frills airlines venturing into Korea's aviation market. Founded by All Nippon Airways a year ago, the company plans to run seven flights a week starting May 8 between Incheon and Osaka and add an extra 14 by July.

Marking the inauguration of its latest route, Peach said it will offer a 30,000-won (US$26.50) one-way promotional fare until the end of June. Regular rates start at 75,500 won with fuel surcharges.

“Powered by a web of open-skies agreements, Incheon Airport is getting busier than ever as more budget airlines buckle down to international routes, fueling competition and supplies of short-haul flights,” said Jung Yoo-jin, an analyst at Kyobo Securities, in a recent report.

Osaka has been one of Japan's most popular destinations due to constant business travel demand, its convenient location close to Kyoto, Kobe and Nara, and renowned tourist sites including a Universal Studios theme park.

Currently, some 90 flights are in operation between Incheon and Osaka every week. Demand is expected to rise further this year as the earthquake-stricken economy gradually gets back on its feet, analysts say.

In the first two months of 2012, Korean Air's average passenger load factor on the section jumped to about 80 percent from last year's 75 percent, industry data shows. The flag carrier, which runs three daily routes to the city, started sending bigger planes last week.

Seoul-based Eastar Jet launched its Osaka-bound flight on Friday. It said it will fly 14 times a week and plans to jack that up to at least 35 by July.

Jeju Air, which became the first local LCC to land in the island country's second largest city in 2009, is also believed to be mulling increasing flights on its Osaka route.

Also tapping the Korean market is AirAsia Japan, a joint venture between ANA and AirAsia, Asia's biggest low-fare airline. The Tokyo-based carrier is scheduled to fly to Incheon and Busan starting October.

Jetstar Japan, which is owned by Japan Airlines, Mitsubishi Corp. and Qantas Airways, aims to begin operations out of Tokyo in the second half, while Shanghai-based Spring Airlines is reportedly preparing to enter the Korean market by the end of this year.

“The carriers' overseas expansion confirms that there is clearly a market for low-cost travel,” said analyst Martin Song with Woori Investment & Securities.

“Despite high fuel prices and stiffening competition, their performances are underpinned by improving demand for air travel.”

The number of Koreans using low-cost airlines surpassed 10 million for the first time last year, up 32.5 percent from 2010, according to the Transport Ministry.

More than 1.8 million Koreans flew overseas with them in 2011, doubling their collective market share to 4.3 percent. The no-frills carriers now operate nearly 30 international itineraries.

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The first passengers of Japan's first low-cost airline, Peach Aviation, board a jetliner at Kansai International Airport in Osaka, western Japan on Thursday, March 1. Korea's ...

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