After Korean Air + Asiana... LCC 'Small Deals' Also Continue

San-eun "Stepwise Integration of Jin Air + Air Busan + Air Seoul"
"Own M&A Momentum is Weak" Calls for Support

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Je-hoon] The mega 'big deal' of Hanjin Group's acquisition of Asiana Airlines is expected to have a significant impact on the low-cost carrier (LCC) industry, where seven airlines are competing. This is because the logic that 'economies of scale' must be achieved for survival applies equally amid years of concerns over overinvestment in the aviation industry.

According to the Ministry of Land, Infrastructure and Transport's Aviation Information Portal System on the 16th, the domestic LCC market share (excluding foreign airlines) is as follows: Jeju Air (14.1%), Jin Air (9.2%), T'way Air (8.4%), Air Busan (8.3%), Eastar Jet (6.5%), Air Seoul (2.0%), and Fly Gangwon (0.002%). None of them hold a clear dominant position.

There have been attempts to secure economies of scale through mergers and acquisitions (M&A) in the LCC market as well. Last year, amid difficulties in the aviation industry caused by the boycott of travel to Japan, calls for structural reform gained momentum, leading Jeju Air to attempt to acquire Eastar Jet. However, the deal ultimately fell through due to the impact of the COVID-19 pandemic.

Industry insiders expect that this big deal will reignite the issue of large-scale M&A in the LCC sector. The immediate sparks for restructuring in the LCC industry are Air Busan and Air Seoul, subsidiaries of Asiana Airlines. The Korea Development Bank has decided to pursue the long-term integration of Jin Air (Hanjin Group), Air Busan, and Air Seoul (Kumho Group). If these three merge, a large LCC surpassing Jeju Air will be created. This could trigger further M&A activity among other LCCs.

However, the problem is that few companies have the capacity to carry out M&A independently. Aside from the Hanjin Group affiliates, there are Jeju Air, T'way Air, and Eastar Jet, but Eastar Jet has suspended operations and is seeking resale. Jeju Air and T'way Air have either conducted or are planning capital increases worth approximately 160 billion KRW and 67 billion KRW respectively, just to survive, let alone pursue M&A.

For this reason, some voices are calling for financial authorities to step in and reorganize the LCC sector, similar to Korean Air's acquisition of Asiana Airlines. Professor Hee-young Heo of Korea Aerospace University said, "There may be airlines watching companies put up for sale for large-scale deals," but added, "Given that the business environment has worsened to the worst due to COVID-19, it seems difficult for industry-led M&A to materialize."

This content was produced with the assistance of AI translation services.