South Korean carrier Korean Air has announced that it will start a budget subsidiary that will allow the airline to compete with other low-cost carriers, which have made significant inroads into Korean's market. According to a statement from the airline, the subsidiary will start service within three years and will probably be run by Korea Airport Service, which provides ground handling services and is an affiliate of Korean Air.
The airline is planned to start service with a few Korean Air Boeing 737s and operate domestic and short and medium range international routes. Eventually, Korean's routes will be split, with the low-cost carrier operating the shorter range routes while Korean Air 'proper' flies long-haul, international routes. Fares at the low-cost subsidiary will probably be about 30% less than Korean Air fares.
One of the reasons that spurred Korean to make this move is the planned completion of high-speed rail service throughout South Korea; the airline is, according to the statement, planning to "develop new markets and business models to effectively use the fleet [of Boeing 737s] that will be freed from domestic operations". Additionally, South Korea signed an open-skies agreement with neighboring China, Vietnam, Thailand and Cambodia, meaning that airlines from those nations and Korea can operate virtually unlimited flights between them. Korean Air also wants to get a larger share of the tourist market, and starting a low-cost branch will probably help them do this.
Korean isn't alone, however - it must not only compete with established low-cost carriers Jeju Air and Hansung Airlines. Rival Asiana Airlines has said that it would not be launching a low-cost subsidiary - for the time being. The executives at Asiana will no doubt be watching Korean Air carefully to see how the 'low-cost experiment' goes.