Korean Air Lines Co. said Thursday it might be forced to delay the launch of low-cost international services by two years after authorities introduced new guidelines on when newly established airlines can fly abroad.
South Korea's Ministry of Construction and Transportation said Wednesday that all new carriers will have to operate domestic flights for at least two years before getting approval to fly international routes.
The move, designed to meet concerns about safety and customer service quality, came two days after Korean Air said it plans to set up a budget air carrier, Air Korea, by May 2008 to fly to China, Japan, Thailand and Malaysia.
"Air Korea will be subject to the new guideline if the company is set up as a separate corporate entity by Korean Air, as announced by Korean Air," Shin Kwang-ho, an official at the transportation ministry, told Dow Jones Newswires on Thursday.
Korean Air told Dow Jones it is considering setting up the unit as planned in May next year and would operate only domestic flights for two years, as dictated by the new rules, before launching international routes.
The other option being considered is to establish the low-cost international flight service business within the current Korean Air structure so that international flights could start immediately.
However, Korean Air said it has some issues with that option.
"Putting the budget airline business under Korean Air could hurt our strategy to shape the brand of Korean Air as a luxury and high-end flight service provider," said Kim Jae-kun, head of Korean Air's task force for the launch of the budget airline unit. "Also, employee salaries is another issue to solve, considering labor costs are critical to the success of a budget airline."
Kim added it is uncertain when the company will make a final decision about which strategy to adopt.
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