Korean Air-Asiana Merger, Final Countdown for This Week's Outcome

Return of Transport Rights Likely a Condition
Merger Synergy Expected to Decrease

[Image source=Yonhap News]

[Asia Economy Reporter Hyunseok Yoo] The Fair Trade Commission's decision on the corporate merger between Korean Air and Asiana Airlines is expected to be announced within this week. Conditional approval requiring the surrender of some slots and traffic rights on certain routes is highly likely. However, depending on the extent of the surrender and any additional conditions, there is a significant possibility that the outcome could be negative rather than synergistic.

According to the aviation industry on the 21st, the Fair Trade Commission held a plenary meeting on the 9th to review the merger of Korean Air and Asiana Airlines. The industry expects the final decision to be announced within this month.

The condition for merger approval is most likely the surrender of slots and traffic rights, which refer to the number of permitted takeoffs and landings at airports held by Korean Air and Asiana Airlines.

In last year's review report, the Fair Trade Commission judged that competition restrictions would arise on a significant number of routes, including 10 monopoly routes with a 100% market share such as 'Incheon~LA,' 'Incheon~New York,' 'Incheon~Zhangjiajie,' and 'Busan~Nagoya.' Especially since the Fair Trade Commission signed a memorandum of understanding (MOU) with the Ministry of Land, Infrastructure and Transport (MOLIT) regarding this case, MOLIT's decision is expected to be reflected. MOLIT has previously allocated the Incheon~Ulaanbaatar route, which Korean Air monopolized, to other airlines. This is also why the surrender of traffic rights is gaining traction.

However, there is also a view that surrendering traffic rights will make it difficult to leverage the strengths of the integrated airline. Surrendering traffic rights could reduce competitiveness and prevent synergy effects from materializing. Economies of scale would become impossible. Korean Air had previously anticipated synergy effects of 300 billion to 400 billion KRW annually upon integration.

There are also opinions that additional conditions could further limit the merger's effects. The Fair Trade Commission issued a review report containing various conditions such as restrictions on fare increases and prohibitions on reducing flight frequencies and other services. Among these, the restriction on fare increases is a concern. Recently, along with high oil prices, employment retention subsidies are expected to be extended only to low-cost carriers (LCCs). In such a situation, if fare increases are also restricted, profitability could deteriorate.

An industry insider said, "Regarding fare restrictions, it is not only Korean Air and Asiana but also other LCCs that could be affected," adding, "Currently, demand and supply are very mismatched, so it seems unrealistic to raise such issues."

Another official explained, "In a situation where fares have fluctuated drastically due to COVID-19 and other factors, ordering to match those prices does not align with the mechanisms of capitalism," and added, "If this materializes, it would eliminate the advantages of mergers and acquisitions (M&A)."

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