K-Airline Big Deal, Even Overlapping Routes Must Be Merged... Concerns Over Weakened Competitiveness

Korean Air and Asiana M&A
Some Route Redistribution Expected
Potential Spillover Benefits for Foreign Airlines

Photo by Hyunmin Kim kimhyun81@

The Fair Trade Commission (FTC) has conditionally approved the merger and acquisition (M&A) between Korean Air and Asiana Airlines on the condition of returning some overlapping North-Central routes, raising growing concerns that the redistribution process could weaken the competitiveness of national airlines. Even if some traffic rights (government-granted flight operation rights) and slots (allowed takeoff and landing times per hour) on overlapping routes are redistributed to other domestic airlines, low-cost carriers (LCCs), which already have limited investment capacity, may find it difficult to gain substantial benefits, potentially resulting in the windfall profits going to foreign airlines.

According to the aviation industry on the 30th, the core of the FTC’s conditional approval for the corporate merger is to ease the competition restrictions on some routes, including 10 monopoly routes where the combined market share would reach 100%, to a minimum level. The 10 monopoly routes include flights departing from Incheon to Los Angeles (LA), New York, Seattle, Barcelona, Phnom Penh, Zhangjiajie, Sydney, Palau, and from Busan to Nagoya and Qingdao. However, the FTC has not yet specified the number of overlapping routes and slots to be redistributed. The final regulatory target routes will be decided at the plenary meeting scheduled for the end of January next year, after which the redistribution of traffic rights and slots will begin.

The redistribution results will vary depending on whether the routes are ‘non-liberalized’ routes, which require traffic rights to operate, or ‘liberalized’ routes. For example, some routes including representative European routes such as Incheon-London, as well as routes to China, Southeast Asia, and Japan, require traffic rights and can only be redistributed to domestic airlines. Non-liberalized routes allow domestic airlines to retain traffic rights against foreign airlines.

The problem arises if domestic LCCs fail to receive traffic rights. The FTC has allowed the merged airline to temporarily continue operations by imposing measures such as fare increase restrictions and prohibitions on supply reduction if redistribution on those routes is structurally difficult, but this essentially maintains the status quo, potentially putting them at a competitive disadvantage against foreign airlines.

The situation is even more concerning for liberalized routes. For example, on the representative liberalized U.S. routes, there is no concept of traffic rights, so after the merger, foreign airlines could strengthen their operations through slot redistribution.

The FTC plans to decide on the return of slots held by Korea at overseas airports after consulting with the Ministry of Land, Infrastructure and Transport, considering factors such as whether the airport is congested and the slot holdings of new entrant airlines. Congested airports are those classified as ‘Level 3’ congestion by the International Air Transport Association (IATA), including major city airports such as Incheon, London, Paris, and New York. It is analyzed that domestic airlines will find it difficult to utilize overseas slots, and if foreign airlines request slot allocation, the Korean government will have weak grounds to specifically restrict this.

The aviation industry is concerned that if redistribution proceeds according to the FTC’s policy, traffic rights for major European routes departing from Incheon, such as London and Paris?so-called ‘golden routes’?may be returned.

Heo Hee-young, a professor in the Department of Business Administration at Korea Aerospace University, said, "Considering that the merger is a task for synergy, there is a risk that our government might inadvertently shackle the aviation industry through traffic rights redistribution," adding, "The adjustment of traffic rights, a core asset of the national industry, needs to be addressed more deeply."

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