Korean Air has also been helped by the sustained industrialisation and modernisation carried out by South Korean governments over the past four decades, which have focused on export–oriented and high–tech and high value–adding industries such as electronics, telecommunications, automobile production and shipbuilding. However, South Korea’s export reliance also has a downside for Korean Air, leaving it relatively exposed to global economic volatilities — as evidenced by the carrier’s fall in international passenger revenue of 17.7% and in cargo revenue of 28.7% in the first half of 2009.
Korean Air’s dependence on international markets is at least helped by an increasing number of liberalised air service agreements signed between South Korea and other countries. By the summer of 2009 the government had signed passenger ASAs with 19 countries and cargo ASAs with 31 countries. The passenger agreements are mainly with countries in the Asia/Pacific region and the Americas, while the cargo agreements include these regions plus selected EU member countries.
Given this background, Korean Air is focusing on building up its medium- and long–haul fleet and has outstanding orders for six A330–200s, 10 A380–800s, 10 777- 300ERs and 10 787–8s. The A380–800s will be deployed on hub–to–hub routes such as Seoul to New York, while the 787–8s are for long, thin routes and the 777–300ERs will fill in routes between these categories. Given Incheon’s hub position, the large medium and long–haul fleet and the myriad of open skies agreements, it’s not surprising that Korean Air serves more destinations in America and Asia than any other airline,resulting in 30.2% cent and 12.9% respectively of its passenger revenue coming from the North America and Southeast Asia routes.
On routes to Europe and the Middle East, however, given its eastern Asian location Korean Air is at a disadvantage to its continental Asian rivals, and so the airline concentrates on direct routes to secondary cities — such as Munich and Milan — which attract some transfer traffic throughout Asia.
Korean Air appears to be retreating from the domestic market, whose revenue contribution has decreased steadily from 17% of total passenger revenue in 2004 to 10.5% in 2008. That’s due partly to the emergence of Korean LCCs (such as Air Busan), which had a 28% domestic market share by mid–2009, up from 2.2% in 2006, and partly to a contraction in the domestic market, which has fallen from 22.5m passengers in 2000 to 16.8m passengers in 2007.
To defend its domestic position Korean Air established LCC Jin Air in July 2008, offering premium service at low fares via four leased 737–800s and a Cessna 208 Caravan. Together with route restructuring efforts, this move helped Korean Air record a 2.7% increase in domestic passenger revenue in 2008 even though passengers carried fell 6.1%.
Much more of a priority for Korean Air than the domestic market is its cargo business, where it traditionally has high volumes and load factors — 9bn ton kilometres and 74% respectively in 2008. The airline has seven 747–8Fs and six 777–200LRFs on order, and is also committed to converting 10 of its 747- 400s to freighters. While the single most important market is North America (accounting for 40.7% of cargo revenue), Korean Air has been trying to strengthen business in China and Southeast Asia, and in late 2007 it launched Tianjin–based Grandstar Cargo International Airlines in co–operation with China’s Sinotrans Air Transportation Development Co and Korean investors.