Fair Trade Commission Completes Review of 'Korean Air-Asiana'... Slot Return and Fare Increase Restrictions

About One Year Since Korean Air-Asiana Merger Application
Examining Competition Restrictions on a Total of 119 Routes Including 87 Passenger Routes

10 Passenger Routes Including Incheon-LA Become Monopoly After Merger
Competition-Restricted Routes Require Slot Surrender
Fare Increase and Other Restrictions Until Slot Surrender is Implemented
Some Cargo Routes May Have Competition Restrictions

Full Board Review as Early as Next Month

(Photo) [Image source=Yonhap News]

[Sejong=Asia Economy Reporter Joo Sang-don] The Secretariat of the Korea Fair Trade Commission (KFTC), equivalent to a prosecution agency, has completed the review of the Korean Air-Asiana Airlines merger. The corrective measures include slot surrender and fare increase restrictions for routes where competition is limited due to the integration, about one year after Korean Air reported the merger to the KFTC.

On the 29th, the KFTC announced that it has completed the review of the Korean Air-Asiana merger case and submitted the review report to the full board meeting. The review report is expected to be sent to Korean Air soon.

Previously, Korean Air signed a contract on November 17, 2020, to acquire 63.88% (1.5 trillion KRW) of Asiana Airlines' shares and reported the merger to the KFTC in January this year.

Accordingly, the KFTC reviewed about 250 flight routes operated by five companies including Korean Air, Asiana, Jin Air, Air Busan, and Air Seoul, focusing on slots and traffic rights, overlapping routes and market share changes, and airfares.

Through this, 119 overlapping routes were identified to examine competition restrictions upon integration. These include 87 passenger routes, 26 cargo routes, and 6 other markets (such as aircraft maintenance).

For domestic routes, the market was defined on a one-way basis considering consumer purchasing patterns. For example, on the Seoul-Busan route, the possibility of taking a plane one way and KTX (Korea Train Express) the other way was considered as a substitute. For international routes, since most tickets are purchased as round trips, the market was defined as round-trip routes.

Competition restrictions were comprehensively considered based on ▲market share ▲existence and capability of competitors ▲economic analysis results ▲excess supply ▲possibility of new entry. According to this, routes between Incheon and LA, New York, Seattle, Barcelona, Zhangjiajie, Phnom Penh, Palau, Sydney, and routes between Busan and Nagoya and Qingdao will become monopoly routes after the merger.

The KFTC viewed that cargo has relatively lower competition restrictions because new entries or increased flights are relatively easier compared to passenger routes, and services are homogeneous. A KFTC official said, "Cargo transport does not require in-flight services, so services are homogeneous and substitutable, resulting in relatively low competition restrictions," adding, "We judged that only a very small number of routes have 'competition restrictions.'"

Accordingly, the KFTC included corrective measures for routes judged to have competition restrictions in the review report. This is a kind of conditional approval. The representative corrective measure is slot surrender. A slot means 'the right for a specific airline's aircraft to use an airport at a specific time.' For routes where competition restrictions are recognized, airlines are required to surrender slots to resolve this.

However, the KFTC did not disclose the specific routes judged to have competition restrictions or the detailed corrective measures.

Reallocation of traffic rights applies only to non-liberalized routes where there are no remaining traffic rights for new entrants to secure. Non-liberalized routes are those where Korea has not signed air liberalization agreements, including many European routes such as Incheon-London and Incheon-Paris, some Chinese routes, some Southeast Asian routes, and some Japanese routes. For example, if 7 out of 14 weekly traffic rights allocated to Korea have already been distributed, new entrants can secure remaining traffic rights without the incumbent companies surrendering theirs. A KFTC official explained, "Traffic rights surrendered by incumbent companies can only be reallocated to domestic airlines under relevant laws," adding, "We do not transfer Korea's air resources, i.e., traffic rights, to foreign airlines."

The KFTC also imposed behavioral measures such as restrictions on fare increases, prohibition of supply reduction, and prohibition of service reduction, considering that structural measures like slot and traffic rights transfers require time to implement.

The KFTC plans to hold a full board meeting as early as early next year to make the final decision on whether to approve the merger. However, even if the KFTC makes a final decision, the Korean Air-Asiana integration will not be finally approved yet. Reviews are still ongoing in seven countries including the United States, the European Union (EU), China, Japan, the United Kingdom, Singapore, and Australia. Ko Byung-hee, Director of Market Structure Improvement Policy at the KFTC, said, "Since multiple foreign competition authorities are reviewing the case, the actual merger, i.e., share acquisition, can only be completed after all reviews are finished, so the status of foreign reviews is very important," adding, "To minimize conflicts between measures from different competition authorities, we are continuously consulting with foreign competition authorities on competition restriction assessments and corrective measures."

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