Aju Business Daily

SEOUL -- South Korea's top budget carrier, Jeju Air, agreed to acquire a controlling stake in a troubled minor player in the low-cost carrier market, nearly one month after its failed bid for Asiana Airlines, the country's second-largest flag carrier.

Jeju Air said on Wednesday that it signed a memorandum of understanding to acquires a 51.17 percent stake worth 69.5 billion won ($59.6 million) from Eastar Holdings, the largest shareholder of Eastar Jet, and management rights. A share purchase agreement will be signed on December 31 and Jeju Air's due diligence will be conducted from December 26 through January 9.

"Through the acquisition of Eastar Jet, we plan to consolidate our top LCC position by expanding passenger occupancy and maximizing the operational efficiency of the LCC business model," Jeju Air CEO Lee Seok-joo said. Jeju Air, based on the southern resort island of Jeju and controlled by Aekyung, has made an aggressive investment to increase the size of its fleet and air routes.

Aekyung, a mid-sized business group, has formed a consortium to acquire Asiana, but a consortium led by HDC Hyundai Development, a comprehensive construction company, was selected as preferred bidder on November 12.

Eastar Holdings said it would jointly run Eastar Jet as its second-largest shareholder to overcome the current crisis caused by competition, a price war and a business slump that worsened due to a boycott of travels to Japan over a trade war. The small budget carrier has formed an emergency task force to cut costs.

Jeju Air has 45 Boing 737s and Eastar Jet operates 23 Boeing 737s flying to 14 destinations in eight countries.

In South Korea's saturated aviation market, there are two full-service airlines, Korean Air and Asiana, and six low-cost carriers -- Jeju Air, Jin Air, T’way Air, Air Busan, Eastar Jet and Air Seoul. Budget carriers transported 29.2 percent of passengers on international routes last year

Lee said in March that South Korea's low-cost carrier market would see a drop in profitability due to the entry of three more budget carriers -- Air Premia, Fly Gangwon and Aero K, which were licensed this year to launch services. "Travel demand is still growing, but supply is expanding at a tremendous pace, and competition is growing," he said, expressing short-term concerns about profitability problems caused by competition.