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Korea’s First Cargo Airline Plans China Route Chasing Samsung

Air Incheon Co., South Korea’s first cargo-only airline, plans to start services this year to smaller cities in China, where Samsung Electronics Co. (005930) and Apple Inc. (AAPL) assemblers are increasingly locating their factories.

Air Incheon expects to receive its second leased aircraft in August and that will facilitate the China service, Vice President Kim Gyu Hyeong said in an interview. The Seoul-based airline, which started operations in March, now moves mobile phones, garments and oil drilling equipment to Japan and Russia.

The cargo carrier aims to focus on flights less than four hours with its Boeing Co. (BA) 737-400 plane, Kim said. South Korea’s dominance in phones, chips and TVs prompted Asia’s fourth-largest economy to issue its first license in March for a cargo-only airline that will compete with international freighters such as Korean Air Lines Co. (003490) and Cathay Pacific Airways Ltd. (293)

“The strategy of focusing on small Chinese cities could work considering how companies are moving further inland,” said Um Kyung A, an analyst at Shinyoung Securities Co. in Seoul. “Smaller planes can go into a lot more places where big ones can’t fly into.”

The carrier plans to provide feeder services to Incheon airport for Korean Air, which moves goods to long-haul destinations, Kim said during an interview yesterday.

“We see opportunities in the niche market,” he said. “We want to tap into markets where big planes can’t get into.”

Samsung, Apple

The global airfreight market shrank 2 percent in 2012 for a second consecutive year and airlines were filling less than half of their cargo planes, according to International Air Transport Association. The industry may expand 2.7 percent this year, benefiting Asian carriers the most, IATA has forecast.

Airlines haul about $5 trillion of total cargo annually, accounting for a third of the global trade in terms of value, according to the group. Asian airlines are the biggest players in the air-cargo market.

Mobile phones are one of the top three products that are moved by air in South Korea, home to Samsung and LG Electronics Inc. (066570) A Boeing 747-8 freighter plane carrying nothing else can hold about 1 million phones.

Samsung, LG and other South Korean companies are making some of the components that go into mobile phones in China. Samsung said in April last year that it will spend $7 billion to build a semiconductor plant in the western city of Xian in China to meet growing demand for mobile phones.

Foxconn Technology Group, the assembler of Apple iPhones, puts together devices in cities such as Zhengzhou and Taiyuan.

Kim said Air Incheon is also interested in flying to Mongolia and Southeast Asia where economic growth spurs demand for air cargo.

“These are the markets we want to tap into,” he said. “Because of the limitation of inland infrastructure, we believe there is demand for our services.”

To contact the reporter on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

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