Korean Air spending huge sums despite industry slump

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 retrenchment by spending money in ways that are raising eyebrows and puzzling industry observers.

In April, Korean Air Lines announced it would 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 was spending $200 million to upgrade its first- and business-class seats on its wide-body jets while other airlines were 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 month, 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, Korean Air 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 Joesentme.com. "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 Southern California, where the largest population of South Koreans outside the country reside.

But in recent years, Korean Air has been one of the few foreign carriers adding flights at Los Angeles International Airport, hoping to attract more Chinese and U.S. fliers to Asia.

Busiest in L.A.

Korean Air is the busiest Asian carrier at Los Angeles, with five to six departures a day, all of them operated on jumbo jets such as the Boeing 747 and 777 aircraft. In all, it has a fleet of 126, most of them wide-body jets.

It also has unfilled orders for 10 Boeing 787s, 15 777s, four 737s and five 747-8 freighters, according to Boeing's Web site.

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.

In its marketing campaigns, it has touted how 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 received a boost last month when Skytrax, an airline research company, said Incheon was chosen the world's best airport by a survey of 8 million travelers.

A recent pact with China has opened the way for Korean Air to offer nonstop flights from China to the U.S.

Korean Air has the financial resources to spend, airline officials said. It is the flagship company for 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 April interview, Korean Air Chairman Cho Yang Ho said the airline anticipated the downturn and began building up its 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 ranked 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. He said he was pleasantly surprised by the service and the comfort of the business-class seats that can unfold into a bed.

Rigorous training

Flight attendants — 300 of whom are picked each year from a pool of 10,000 applicants — are required to speak three languages, including English, fluently. The training is rigorous and even includes the proper way to bow — 15 degrees forward for passengers of similar age or younger, 30 degrees forward for elderly or VIP passengers.

Thorp compared the airline to Cathay Pacific, the Hong Kong-based carrier considered one of the best in terms of in-flight service and amenities.

But he added that Korean Air was not quite up there with Singapore Air, which often tops surveys as the best carrier in the world.

"Meals were decent, but I'd prefer more Western offerings. It wasn't a game-breaker though," he said. "I would fly them again."

The airline does need to upgrade first- and business-class cabins to retain 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."