Korean Air-Asiana Monopoly Route Adjustment, a 'Desperate Measure' to Accelerate Integration

Route Adjustment Merger Review Request
Return of 'Golden Route' Transport Rights and Slots
Foreign Airlines Gain Indirect Benefits
Concerns Over Weakened Competitiveness of Integrated Airline
Chairman Lee Dong-geol: "Don't Cut Off Your Nose to Spite Your Face"

With KDB Industrial Bank and others requesting a corporate merger review focused on adjusting some monopolistic routes in relation to the integration of Korean Air and Asiana Airlines, a green light has been turned on for the Fair Trade Commission's review process. However, the industry is concerned that such adjustments to traffic rights and slots (SLOT: number of takeoffs and landings per hour) could weaken the competitiveness of the integrated airline.

According to the industry on the 1st, KDB Industrial Bank and Korean Air are considering adjustments to traffic rights and slots on certain routes departing from Incheon, such as Los Angeles (LA), as a kind of 'last resort' in relation to the corporate merger review that has not been progressing quickly. The Fair Trade Commission is concerned about the 'restriction of competition' resulting from the integration of the country's first and second largest operators, and more than a year has passed without a conclusion. In particular, major competition authorities in the U.S., China, the European Union (EU), and Japan, which hold the key to the integration, have yet to make progress in their reviews.

The problem is that depending on the Fair Trade Commission's future decision, if the integrated Korean Air returns traffic rights and slots on major long-haul international routes, foreign airlines rather than domestic carriers are likely to reap the benefits. For example, the LA route, known as the 'golden route,' has a flight distance of 10,000 km, making it impossible for low-cost carriers (LCCs) such as Jeju Air and T'way Air to respond with their main aircraft types. This issue similarly applies to other long-haul routes to Europe and elsewhere. Moreover, it is not easy for these carriers to introduce new aircraft, as the financial strength of the entire aviation industry, including Korean Air and Asiana Airlines, has plummeted to the bottom due to COVID-19.

Air Premia, which owns the mid- to long-haul aircraft B787-9, is considering entering long-haul routes such as LA, but currently owns only one aircraft. An industry insider said, "The business models of LCCs, which leverage economies of scale on short-haul routes, and full-service carriers (FSCs), which mainly operate on mid- to long-haul routes, are fundamentally different," adding, "Rather than the harm caused by monopolies, this could end up benefiting only foreign airlines."

The stakeholders are also deeply concerned. Since both airlines have competed fiercely with LCCs on short-haul international routes and with foreign airlines on mid- to long-haul routes even before the COVID-19 pandemic, there are worries that reductions in traffic rights and slots could lead to weakened profitability and competitiveness.

Lee Dong-geol, chairman of KDB Industrial Bank, mentioned 'gyogak salu (矯角殺牛, meaning "ruining a task by trying to fix a flaw")' during an online press conference the day before, saying, "With fierce competition among countries in the global aviation industry, if our country falls behind in this race, we must seriously consider where consumer welfare can be improved," and added, "I hope the Fair Trade Commission takes a long-term view and considers this in the industrial context."

The Korean Air Pilots Union also raised their voice, stating, "Distributing existing traffic rights to other airlines, especially foreign carriers, on the grounds of concerns about monopolies is tantamount to handing over aviation sovereignty to foreign countries," calling it "a mistake akin to burning down one's own house."

Experts also express concerns about excessive returns of traffic rights and slots. They emphasize the need to consider the characteristics of the aviation industry, where a one-country-one-airline system and perfect competition are common.

Professor Heo Hee-young of Korea Aerospace University said, "Except for the U.S., China, and Japan, international air routes operate under a one-country-one-airline system where national representatives compete, and even if the integrated Korean Air launches, it will only be a player competing with them across international routes," adding, "The perspective of monopoly is like a frog in a well; to enhance competitiveness, the airline must be allowed to grow in size to achieve 'economies of scale.'"

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