The transport ministry conducted a safety review of the country's six budget carriers this month, after one aircraft was forced to make an emergency return due to an unsealed door.
The Boeing 737-800 belonged to Jin Air, a budget airline operated by South Korea's top carrier Korean Air.
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The ministry concluded today that low cost carriers were making an "inadequate" investment in safety given the exponential growth in traffic over the past decade.
The six budget carriers accounted for 59 per cent of domestic market share last year, mostly centred on the route between Seoul and the southern resort island of Jeju.
"Airlines which fail to ensure passenger safety ... Will face closure through cancellation of business licences," the ministry said in a press statement.
In the specific cases involving Jin Air and Jeju Air, the ministry said pilots and ground crews who appeared to have ignored basic safety procedures would be suspended for 30 days.
The government also plans to suspend the operations of the two airlines for seven days or fine them 600 million won ($496,000), it added.
South Korea currently has six licensed budget airlines operating in an increasingly crowded market. The latest addition - approved at the end of last year - is Air Seoul, the second low-cost carrier operated by Korean Air's main rival Asiana.
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