Korean Air says to launch budget carrier in 2008

SEOUL (Reuters) - Top South Korean carrier Korean Air (003490.KS: Quote, Profile, Research, Stock Buzz) said on Monday it will set up a budget carrier next year with a 20 billion won ($22 million) investment, a move which will tap rising international travel.

The announcement comes after Tiger Airways, a low-fare airline partly-owned by Singapore Airlines (SIAL.SI: Quote, Profile, Research, Stock Buzz) said earlier this month that it would start a new Korean budget airline in a joint venture with the port city of Incheon. South Korea's main international airport is close to the city.

Shares at Korean Air reacted positively, rising more than 7 percent.

"Korean Air and Air Korea, a separately operated subsidiary will complement each other for a win-win relationship," the company said in a statement.

"Korean Air will concentrate on upper class business travel demands and Air Korea shall focus on travellers seeking shorter distance leisure travel routes."

The new unit will begin operation in May 2008, opening flights to Shandong and Hainan Provinces in China and to Japan except Tokyo, as well as Thailand and Malaysia.

It gradually plans to widen its network to other short- or mid-distance destinations.

For operations, the low-cost carrier will secure three Airbus ARBU.UL A300s and two Boeing (BA.N: Quote, Profile, Research, Stock Buzz) B737s, which are short- to medium-range aircraft.

Maintenance and operation training will be outsourced to Korean Air.