Korean Air Overcomes Major Hurdle... Opportunity Gained by LCC

Mega Carrier Launch Signals Major Shift in Aviation Industry
LCCs Also Challenge Long-Haul Routes

[Asia Economy Reporter Hyunseok Yoo] The Korea Fair Trade Commission (KFTC) has conditionally approved the merger of Korean Air and Asiana Airlines. For Korean Air, this marks a significant milestone in the merger process. However, the approval comes with conditions requiring the transfer of slots (the number of aircraft takeoffs and landings allowed per hour) and traffic rights (government-granted operating rights to airlines) on certain routes such as New York, Paris, and Jeju to other airlines, as well as restrictions on fare increases.

On the 22nd, the KFTC announced that it would conditionally approve Korean Air's acquisition of 63.88% of Asiana Airlines' shares.

The KFTC determined that among the 65 overlapping international routes held by both companies, 26 routes, and among the 22 overlapping domestic routes, 14 routes, there is a significant risk of restricted competition.

Therefore, for domestic and international passenger routes where competition is likely to be limited, structural measures such as the transfer of slots and traffic rights will be imposed for the next 10 years to promote the entry of competing airlines. Additionally, considering that it will take some time to implement these structural measures, restrictions on fare increases and prohibitions on seat supply reductions will be concurrently imposed on each affected route.

Korean Air stated, "We accept the KFTC's decision and plan to do our best to obtain approval from overseas competition authorities for the merger review."

However, there are concerns that the KFTC's decision could undermine the synergy of the integrated airline. An industry insider commented, "The integrated airline needs to create synergy based on the networks of both companies," adding, "The KFTC's decision inevitably diminishes the economies of scale effect."

Another industry expert emphasized, "The airline industry is highly influenced by various factors, so timely responses are necessary," and warned, "The 10-year period and the existence of a compliance monitoring committee could reduce the airline's management autonomy and weaken integration synergy."

Low-Cost Carriers (LCCs) are expected to benefit indirectly from the KFTC's decision. Korean Air must transfer airport slots on liberalized routes such as Seoul-New York and Los Angeles, and both slots and traffic rights on non-liberalized routes such as Seoul-London and Paris to new entrant airlines. Additionally, the integrated airline must return airport slots it holds on domestic routes, increasing opportunities for LCCs to enter the market.

However, some express regret over certain aspects of the KFTC's decision. An industry insider said, "Grouping Gimpo and Incheon as the same departure point is disappointing from an LCC perspective because the market characteristics and demand differ by departure location, yet these routes were consolidated into one," adding, "Entry barriers remain high for Chinese routes where securing traffic rights is necessary." They further noted, "In the case of short-haul routes, the integrated airline's monopoly will intensify, while on long-haul routes, there could be an effect of ceding the market to foreign airlines."

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