South Korea’s main flag carrier Korean Air said Monday it will launch a low-cost airline next year and will strive to become Asia’s biggest budget carrier by 2012. Korean Air said it would set up a separate unit named Air Korea with paid-up capital of 20 billion won ($21.5m). With three Airbus A-300s and two Boeing 737s, Air Korea will initially operate short-haul international routes to China, Japan, Thailand and Malaysia from May next year.

‘It gradually plans to widen its network to other short or mid-distance destinations,’ the company said in a statement. Korean Air said it would concentrate on ‘upper-class business travel demands,’ with Air Korea focusing on travellers seeking shorter holiday trips. The company’s move came three weeks after the western port city of Incheon forged a joint venture with Singapore’s Tiger Airways to jump into Asia’s booming budget aviation market.

Jeju Air, one of South Korea’s two existing low-cost domestic carriers, has also announced plans to expand internationally. Air Korea aims to generate 100 billion won in sales for its first fiscal year and swing to a profit three years later, Korean Air executive Kim Jae-Keon told Yonhap news agency.

‘With sales of 250 billion won ($269m) in 2012, our target is to become Asia’s top budget carrier by overtaking Tiger Airways,’ he said. Budget ticket prices would be set at between 75 per cent and 80 per cent of the parent company’s prices, said Kim, executive vice-president of the preparatory team.

Discount carriers now make up 20 per cent of the US and European air travel market and are expanding quickly in China and Southeast Asia.

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