Non-Tariff Trade Barriers in Action: Keeping Budget Airlines Out of Korea
by Brendon Carr
The Ministry of Construction and Transportation (MOCT) put the kibosh last week on Korean Air’s defensive plan to launch Air Korea, a low-cost carrier for international flights. This probably portends difficulty for the City of Incheon’s plan to launch an internationally-focused low cost carrier, Incheon Tiger Air, in collaboration with Singapore-based budget carrier Tiger Airways.
MOCT cites its regulation requiring a Korean-based airline to have two (reported elsewhere as three) years’ accident-free domestic air service experience before being granted the right to fly international routes. The two start-up airlines Hansung Air and Jeju Air both fail this requirement, having suffered small mishaps in their early going.
The MOCT regulation means that Air Korea and Incheon Tiger Airways will need to endure two years of loss-making flights around this small country (Korea is only the size of Indiana, by the way), with aircraft better suited to short-haul international flights from Seoul to Shanghai, for example.
Foreign investors are prohibited from owning more than half of a Korean airline. Even if the market were open, though, the two-year domestic operation requirement effectively stops them from investing here because of the difficulty of making a go of things where the flight has to compete with rail and bus over such short distances. And that, my friends, is why our ticket prices remain quite high here in Korea.
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I’d call this a reverse non-tariff barrier. There is no barrier to El Cheapo Thai Old-DC-9 Airways coming here and offering budget flights to Pattaya, but there is a barrier to homegrown carriers returning the favor of delayed flights and missing baggage.
That’s partly what makes it so silly. There is, as you note, no express barrier to a discount carrier flying to Korea—except that IATA rules generally dole out routes reciprocally. So the discount carrier would still have to gain access to routes. Since there are no domestically-based no frills airlines, foreign no-frills airlines are disadvantaged in getting routes.
The parties being hurt by this MOCT desire to maintain control over the Korean carriers are the Korean consumer (you and me) and the would-be operators of the Korean no frills carriers.
Apparently Asia Air X plans to fly from Malaysia to Cheongju in the near future.
Will there be a reciprocal route offered to Korean discount airlines?