"Unable to Get Marriage Approval"...The Difficult Road Toward Top 10 Airlines [Business & Issues]

②Korean Air and Asiana Merger Delayed Past Year-End

This spring, the mileage system reform issue caused a stir ahead of the corporate merger and acquisition (M&A) between Korean Air and Asiana Airlines. Mr. Kim Hangil (48), who booked a round-trip economy ticket from Incheon to Frankfurt during the off-season using 70,000 Asiana miles, faced another dilemma as the merger issue was postponed to next year. He had planned to switch to a credit card that accumulates Korean Air miles instead of Asiana miles after using up his mileage, but as the merger seems unlikely to happen soon, he is leaning toward continuing to accumulate Asiana miles.

◆ Three Years of Merger Efforts... Consumers Are Also Confused

Since the merger discussions between Korean Air and Asiana Airlines began in earnest in 2020, consumers have been engaged in a precarious tug-of-war over airline miles. Many consumers have already switched their mileage accumulation from Asiana to Korean Air early on due to concerns that their hard-earned miles might lose value after the merger. Among those still accumulating Asiana miles, the prevailing view is that the merger is not beneficial for consumers who accumulate or use miles, with worries about potential 'deterioration' of the system. Some even argue that it might be better if the merger is delayed further or fails altogether.

To make matters worse, as of the third quarter this year, Korean Air and Asiana Airlines have unused mileage liabilities amounting to 2.47 trillion KRW and 950 billion KRW, respectively. With the expiration of miles older than 10 years set for the 31st of this month, consumer dissatisfaction is rising as they scramble to find ways to use their miles. The competition for tickets purchasable with miles intensified earlier this year due to the merger and mileage system reform issues. Consumers who failed to purchase tickets amid this competition are now belatedly seeking other uses, but buying items like supermarket goods, movie tickets, or resort vouchers is challenging due to high demand or varying mileage redemption values, leading to significant dissatisfaction.

◆ Reasons for the Delay in the Korean Air-Asiana Airlines Merger

Contrary to consumers’ wishes that the merger be delayed or not proceed at all, Korean Air, Asiana Airlines, and KDB Industrial Bank?the creditor of Asiana Airlines?find the slow progress frustrating as they have been dealing with the merger issue for three years.

If Korean Air acquires Asiana Airlines, it will become a mega airline with assets worth 40 trillion KRW, ranking among the top 10 airlines worldwide. Becoming a mega airline would increase Korea’s influence in the global aviation industry and create synergies through route optimization. Asiana Airlines urgently needs capital injection, with debts amounting to about 13 trillion KRW (consolidated basis) and a debt ratio exceeding 2000% as of the end of the third quarter. If Korean Air injects 1.5 trillion KRW, Asiana’s debt ratio could drop to around 500%. The Industrial Bank also sees the merger as the only way to recover the approximately 3.6 trillion KRW of public funds it has invested in Asiana Airlines. Thus, Korean Air, Asiana Airlines, and the Industrial Bank, which provided public funds, all view the merger as the sole escape route.

However, the creation of a mega airline raises antitrust concerns, making regulatory approval difficult. On the 27th, Korean Air announced through the Financial Supervisory Service a correction to the scheduled acquisition date for its participation in a 1.5 trillion KRW third-party allotment capital increase of Asiana Airlines, changing it from December 31, 2023, to March 31, 2024. This is because it has not yet received corporate merger approval from the European Commission (EC) by the scheduled acquisition date. Since the first announcement of its decision to acquire Asiana Airlines shares in November 2020, Korean Air has issued 12 correction announcements and has yet to complete the share acquisition process.

The EC, which is reviewing the merger of the two airlines, has stated it will reach a conclusion by February 14, 2024. In May, the EC issued a report expressing concerns that the merger could reduce competition in passenger and cargo transport on European routes and suspended the merger review. Korean Air, which urgently needs approval, submitted a remedy plan to the EC on the 3rd of last month, including the plan to divest Asiana Airlines’ cargo division, in an effort to address the EC’s concerns. If Korean Air succeeds in obtaining EC approval by February next year, only the competition authorities in the United States and Japan will remain as obstacles among the 14 countries subject to merger approval.

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