During what should have been a quiet week, Korean’s competition authority last week said it was going to approve the proposed acquisition of a majority stake in Asiana by Korean Air, effectively creating a single dominant player in the South Korean market. This is a major step in the process, so I thought it was worth diving in a little deeper.
Asiana has been in financial trouble for some time, even pre-dating the pandemic. The pandemic only made things worse, and the easy solution was to simply merge the two airlines. Korean is the de facto flag carrier even though it is technically privately-owned by the Hanjin chaebol. Asiana was part of the Kumho Asiana Group, but the controlling stake was sold off and Asiana has remained in limbo as a new owner is sought. It was in late 2020 that the bright idea of making Korean take over Asiana came to be.
The two airlines have broad service to every region of the world outside of Africa and the Middle East. Here’s a map looking at current plans for July 2022, though these are obviously highly subject to change.
July 2022 International Route Map for Asiana and Korean Air
If we look at 2019 seats, you can see why there might be some concern from competition authorities here. Korean, its subsidiary Jin Air, and its joint venture partner Delta had 34 percent of seats departing South Korea while Asiana and its subsidiaries Air Busan and Air Seoul had 22.5 percent. That leaves only 43.5 percent of seats in the hands of others.
But that fails to really tell the whole story here. The domination by geography is very different. Here’s a look at 2019 seat shares broken down by region.
Seat Share by Geography for Asiana, Korean Air, and Joint Venture Partners/Subsidiaries
Obviously Australia/New Zealand and South Asia (which is almost entirely India) are the biggest points of concern. But even in the Americas, the two airlines along with Delta control three-quarters of the market. In the domestic market, it’s a hefty 69.3 percent. These are all problematic in one way or another.
For that reason, the regulator has warned that it is not going to just give carte blanche to the combined airlines. Instead, they’ll likely face slot/gate divestitures. There are 10 routes of primary concern since they will become monopolies:
- Busan – Nagoya (flown by Korean and Air Busan)
- Busan – Qingdao (flown by Korean and Air Busan, China Eastern flew last in 2015)
- Seoul – Barcelona (flown by Korean and Asiana)
- Seoul – Los Angeles (flown by Korean and Asiana, Singapore flew last in 2018)
- Seoul – New York (flown by Korean and Asiana)
- Seoul – Palau (flown by Korean and Asiana, not in future schedules)
- Seoul – Phnom Penh (flown by Korean and Asiana, Cambodia Airways briefly flew in 2020)
- Seoul – Seattle (flown by Korean, Delta, and Asiana)
- Seoul – Sydney (flown by Korean and Asiana)
- Seoul – Zhangjiajie (flown by Korean and Air Seoul through 2020, not in future schedules)
The idea here would be to free up slots and gates to allow new entrants, but who is really going to do that? On the short-haul routes, I can absolutely see success in either attracting new Korean low-cost operators or Chinese and Japanese carriers. I’m assuming South Korea would rather see the former. For Phnom Penh, maybe Cambodia Airways will come back or maybe some adventurous Korean carrier will give it a shot. And I suppose Qantas has been getting ready to grow significantly again, so maybe it can be coerced into starting Sydney. But for the Americas and Europe, it’s going to be a tougher sell.
Barcelona’s best shot would be LEVEL, but LEVEL likely has no interest in that… it barely exists as it is. And then there’s the US market which has LA, New York, and Seattle on the list. I could see United possibly considering Newark someday… maybe. And could American do Seattle? For LA, that would have been obvious for American before, but now I guess United would be the only hope. I wouldn’t put much stock in any of these unless corporate clients will show enough interest to make it work. Maybe the most likely possibility is some wide-eyed new entrant from South Korea, but that’s not bound to end well.
Of course, for the regulator, that’s not necessarily the issue. If it can free up more gates and slots at Incheon, then it can divvy them up and let others use them in different ways even if some of these monopoly markets don’t get new service themselves. That’s still a victory.
The reality is that Asiana was in trouble, and the two combined will have more seats than they should be offering. While nobody likes giving up slots and gates, Korean was bound to slash Asiana’s service level down to something more rational anyway. That alone will lower the combined market share, and it will not be a huge hardship for Korean to let some slots go. We do need to know what the ask is, naturally. But as long as it isn’t egregious, I expect this wouldn’t be an issue.
With this hurdle seemingly clearly, Korean can go back to focusing on what the other outstanding jurisdictions will do. Australia, China, the EU, Japan, Singapore, and the UK have all yet to weigh in, so we will have to wait and see what they say before knowing if this will really happen or not.