Air Premia braces for long-haul battle with new Boeing 787s

HONG KONG/SEOUL (Reuters) - South Korean carrier Air Premia announced on Wednesday a provisional deal to buy five Boeing (N:BA) 787-9 Dreamliner jets worth $1.4 billion at list prices, becoming the latest new airline to enter the highly competitive low-cost, long-haul market.

The deal follows an agreement to lease three 787-9 jets from Air Lease Corp (N:AL) as Air Premia prepares to start flying in September 2020. It will seek another two 787-9s by 2024.

Planned destinations include Vietnam and Hong Kong next year and Los Angeles, which has a large American Korean community and business ties, in 2021. It is one of several emerging players in South Korea's expanding but highly competitive low-cost market.

Chief Executive Peter Sim described Air Premia as a "hybrid" airline offering greater comfort than low-cost rivals but lower fares than domestic giants Korean Air (KS:003490) and Asiana (KS:020560).

It will offer two classes including Premium Economy and a coach class still with extra legroom, called Economy Plus.

"We are going to offer a slightly lower price than full-service carriers with a better product," Sim said in an interview in Hong Kong, where he was attending the Airfinance Journal Asia Pacific conference to drum up aircraft funding.The airline is targeting customers such as empty-nesters in their 50s or 60s with an appetite for long trips in some comfort but unable to afford traditional premium fares.

Sim, former head of a biotech company who invested in the startup along with a group of tech entrepreneurs, said Air Premia would also target a young, connected audience with its own onboard streaming product.

But he acknowledged it would be tough to woo premium passengers from the two main South Korean rivals.

Analysts say airlines with novel business models or those participating in the volatile long-haul, low-cost market face risks including technical outages away from base and higher crewing costs compared to short-haul budget carriers.

Sim said Air Premia had signed up for long-term servicing agreements with Boeing.

Asked how he would avoid financial strains like those at Norwegian Air (OL:NWC), which also invested in a new fleet of 787s only to rack up debt, Sim said the "fan base" of the two airlines was different. Separated from key destinations by the Pacific, Koreans are ready to travel at a "proper price," he said.

Analysts say South Korea's budget carriers are grappling with rising competition and a slump in travel demand to its neighbouring country, Japan, as a result of a diplomatic row.

Seouleaguer Co. Ltd. (KQ:043710), a distributor of Botox and fillers, holds a 9.53% stake in the unlisted Air Premia.

The 787s will be powered by engines from Britain's Rolls-Royce (L:RR), which has had a series of technical problems.

Rolls, which competes with General Electric (N:GE) on the 787, offered Air Premia a "cutting edge" financial deal, Sim said, adding he was confident it would overcome recent snags.