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The Clouds Part For Asiana (Int'l Edition)


Business Week International International Business: SOUTH KOREA

THE CLOUDS PART FOR ASIANA (int'l edition)

Park Sam-Koo, president of upstart Asiana Airlines Inc., doesn't do things halfway. Last year, after concluding that most passengers on South Korea's No.2 airline preferred nonsmoking seats, he banned smoking on all domestic and international flights. To drive the point home to Asiana employees, Park also banned smoking on company property, including its Seoul headquarters, and backed it up with a system of warnings.

Such decisiveness is finally starting to pay off for the six-year-old Asiana. The airline set a tough course: win market share within Korea from the powerful Korean Air and internationally from Korean Air and such veteran players as Japan Airlines and Singapore Airlines. But with keen attention to passenger comfort, a factory-fresh fleet of Boeing jets, and a growing string of promising routes, Asiana appears to have turned the corner. After piling up losses of $300 million since its founding, the airline has posted its first profit, earning $18 million on sales of $990 million last year. Now, Park wants to add more routes and nearly double Asiana's fleet, to 60 aircraft, by 2000.

Asiana's push for growth starts with Park's older brother, Park Seong-Yawng, chairman of Kumho Group, a conglomerate with interests ranging from tiremaking to bus lines. Looking for fresh opportunities, the elder Park launched Asiana in 1988. Rather than have the airline just serve the limited domestic market and remain a second-tier airline, the Yale University-educated former economics professor challenged Korean Air head-on. He set up an international network that included nine major cities in Japan, six Southeast Asian destinations, and three U.S. gateways: Los Angeles, San Francisco, and New York.

Gaining an edge on crosstown rival Korean Air took some doing. In contrast to Korean Air's mixed fleet, Asiana buys only new Boeing aircraft. That provides its passengers with the latest jets, while the airline gains ease of maintenance and training. As for fares, Asiana undercuts Korean Air by 5% on most routes. Passengers, says Kim Sang-Hak, a travel agent with Seoul's Charm Tours, tend to prefer Korean Air for frequency and schedule but Asiana for its in-flight service.

Another key to Asiana's success is the way it has exploited a weakness in the Japanese air-transport system. Asiana created a hub in Seoul for Japanese passengers from such provincial cities as Toyama and Hiroshima. Since few Japanese domestic flights connect these cities with international airports in Narita or Osaka, Asiana picks up these passengers at their local airports and transfers them to flights departing from Seoul. It's quicker and cheaper. An Asiana flight to San Francisco from Hiroshima via Seoul costs only $750, less than half the normal fare on a Japanese airline via Narita.

LANGUAGE BARRIER. Asiana's Japanese business is threatened by the recent opening of Kansai International Airport in Osaka. With Japanese airlines feeding into it, the new airport offers Japanese passengers additional access to JAL and All Nippon Airways Co. overseas flights. But Asiana's Park is not worried, figuring that his Japanese customers will stay loyal.

New routes could make up for any losses. With affluence rising, 3.1 million Koreans toured overseas last year, and such travel is growing by 10% a year. In December, Asiana beat out Korean Air for a highly prized Seoul-Shanghai route. More recently, Asiana entered into a marketing and code-sharing agreement with Northwest Airlines Inc. Flights to Seattle will start in May, and by yearend, Asiana hopes to be flying to Europe.

With a shortage of experienced Korean crews, Asiana, like Korean Air, uses foreign pilots and Korean co-pilots. Some experts consider the practice a safety hazard because of potential language problems. An alleged dispute between a Canadian pilot and his Korean co-pilot has been blamed for the crash of a Korean Air Airbus last August. Asiana puts its crews through a special training program, and "language is not a problem in the cockpits of our planes," says President Park. However, as a cost-cutting move, Asiana requires cabin crews to spend about 20% more hours in flight than their counterparts in other Asian airlines. Park expects to shorten the hours as the airline hires more staff.

Asiana is determined to do even better against Korean Air. The upstart has already snared a third of Korea's domestic market and 17.5% of the international traffic out of Seoul. For the Park brothers, that's just a good start.By Laxmi Nakarmi in Seoul, with Joyce Barnathan in Hong Kong and Hiromi Uchida in Tokyo


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