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Korean Air Lines

Korean Air's spending blitz

Jun 29, 2009

SEOUL, South Korea — Slammed by the worst travel slump in decades, the world's largest airlines have been grounding flights, slashing cabin services and pulling out first-class seats.

But a South Korean airline is bucking the industrywide retrenchment by spending money in ways that are raising local eyebrows and puzzling industry observers.

In April, Korean Air Lines Co. grabbed attention when it announced that it will build a $1 billion high-rise hotel and office complex in downtown Los Angeles at a time when most commercial real estate developments have been postponed or canceled.

In May, the airline said it is spending $200 million to upgrade first- and business-class seats on its wide-body jets while other airlines are pulling them out and replacing them with coach chairs. The number of premium passengers has plummeted far more than budget-conscious leisure travelers.

Then last week, the airline placed a $300 million order for new jet engines for its planes as competitors have been taking aircraft out of service. And amid a general slump in advertising, the airline has stepped up U.S. television and radio ads with a $10 million campaign, flooding the airwaves with its "Excellence In Flight" slogan.

"This kind of economic situation is temporary," Lee Jong Hee, the airline's president, said at its headquarters outside Seoul. "It will get better very soon, and we want to be ready for it."

The airline is banking on a costly — and risky — assumption that when the global economy recovers it will have a competitive advantage over others that have been cutting back.

"They want to raise their image, hoping to benefit when the economy turns around," said Joe Brancatelli, editor of business travel Web site "They can't survive just bringing travelers to Korea. They have to be seen as a leader in pan-Asian travel."

The airline has been better known for flying friends and family of residents between South Korea and Honolulu and Southern California, where large numbers of South Koreans reside.

Korean Air has been one of the few foreign carriers adding flights at Honolulu International Airport and Los Angeles International Airport, hoping to attract more Chinese and American passengers flying to Asia.

Korean Air has flights seven days a week to Honolulu. And it is one of the busiest Asian carriers at Los Angeles, with five to six departures a day.

Next year, the airline plans to be the first Asian carrier to operate the Airbus A380, the world's largest passenger jet, at LAX. It has ordered 10 of the $300 million planes.

Its marketing campaigns tout that it flies to more cities in Asia from more places in the U.S. than any other airline. It flies to 10 U.S. cities, including Seattle, Atlanta and New York, and 25 cities in China, all connecting through its main hub in South Korea: Incheon International Airport.

Its hub strategy got a boost last week when Skytrax, an airline research company, said Incheon was named the world's best airport in a survey of 8 million travelers.

A recent pact with China also has opened the way for Korean Air nonstop flights from China to the U.S. Chinese airlines are the only carriers currently allowed to fly nonstop from Los Angeles to China. The nonstop flights could begin by year's end, Korean Air officials said.

Korean Air has the resources to spend, airline officials said. It's the flagship company of the Hanjin Group, a conglomerate that has interests in land, sea and air transport as well as construction, heavy industry, finance and information services.

In an interview with the Los Angeles Times in April, Korean Air chairman Cho Yang Ho said the airline anticipated the downturn and began building up cash reserves more than a year ago.

"We expected some problems, and we prepared by accumulating cash," Cho said.

The airline's goal is to be among the world's top 10 carriers. It's currently 20th in terms of passenger traffic. But to be among the top, it would have to lure more non-Korean business travelers such as Albert Thorp, chief financial officer for a Hatfield, Pa., maker of flow measurement and control devices. Thorp, who flies frequently for business, recently flew on Korean Air for the first time and said he was pleasantly surprised by the service and the comfort of the business-class seats that can unfold into a bed.

The airline does need to upgrade first- and business-class cabins to draw passengers such as Thorp, Brancatelli said. But he added, "I don't know how much more they can spend when the market is disappearing and may not come back."

Korean Air's spending blitz
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Source: Los Angeles Times

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