Serious drag on Korean Air-Asiana merger, LCCs anxious

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Asiana Airlines Airbus A350-900

The planned merger of Korean Air (KE, Seoul Incheon) and Asiana Airlines (OZ, Seoul Incheon) is likely to take longer than anticipated as antitrust authorities in the European Union, the United Kingdom, and Japan, among others, have yet to schedule their investigations because of a delay in the flag carrier supplying the necessary documents, local media reported on December 7.

Korean Air revealed back in November 2020 that it would acquire its longtime rival to create the world’s tenth-biggest airline by fleet, and documents were reportedly submitted in January to competition agencies in 14 countries seeking their approval of the merger.

The UK’s Competition and Markets Authority eventually announced on November 19 that it had opened a public invitation to comment on the merger until December 3. That was the first stage in a probe to judge whether the proposed takeover “may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.”

The European Commission and Japan’s Fair Trade Commission had also not yet embarked on their own reviews of the deal because they were still awaiting the necessary documentation from Seoul, the JoongAng Ilbo newspaper reported.

These represent three of the eight sets of destinations to which Korean Air and Asiana have their main routes, the other five being the United States, China, Taiwan, Thailand, and Turkey, and without approval from these regulators the would-be combined airline will not be able to operate its routes even if the Korean Fair Trade Commission greenlights the merger. The latter said it expects to present its conclusions by the end of this year.

So far, Taiwan, Thailand, and Turkey have approved, as have Vietnam, Malaysia and the Philippines. In the case of China, Beijing immediately sent back the request, since which it has been resubmitted with clarifications, sources told the newspaper.

There will be an estimated 32 routes in which the newly merged entity would have a market share in excess of 50%, so the airline may be required to relinquish some routes in order to obtain the approvals it needs.

The delay is exasperating for the low-cost subsidiaries of Korean Air and Asiana, namely Air Busan, Air Seoul, and Jin Air, as there is still no clarity as to whether they should be merged, or how, the economic newspaper NewsPim reported. It is also frustrating for the country’s other LCCs – Jeju Air, T’way Air, the newer Fly Gangwon and Aero K, and the reviving Eastar Jet – as the market’s overall future landscape is obscured.

All of the budget carriers are already in troubled waters due to the prolonged affect of the pandemic on demand and travel restrictions. According to NewsPim, Jeju Air has a KRW304 billion (USD259 million) forecast operating loss for this year, Jin Air KRW203 billion (USD173 million), and T’way KRW154 billion (USD131 million).

As one airline representative told the daily: “Covid-19 is a problem that can be resolved if we endure, but it is difficult to make hasty judgments about the direction of industry restructuring after the integration of the full-service carriers because the direction is unpredictable. But we have to make a decision soon.”

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