The World is Experiencing a Mega Carrier Boom... Will a Giant Emerge as 10th in Passenger and 3rd in Cargo?

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[Asia Economy Reporter Yu Je-hoon] Ranked 10th worldwide in international passenger sector and 3rd in cargo sector. This is the report card of the 'mega carrier' that would be created if Hanjin Group acquires Asiana Airlines.

According to the global air transport statistics published by the International Air Transport Association (IATA) on the 13th, as of last year, Korean Air and Asiana Airlines ranked 19th and 36th respectively in the international passenger sector, and 7th and 11th respectively in the cargo sector. However, combined, the two airlines are expected to leap to 10th place in passengers (33.457 million) and 3rd place in cargo (2.229 million tons).

Globally, the trend in the aviation industry is also moving toward mega carriers. In Europe, where air liberalization between countries has progressed significantly, Air France, British Airways (IAG), and Lufthansa have each expanded their size by acquiring KLM (Netherlands), Iberia Airlines (Spain), and Austrian Airlines (Austria), respectively. In the large U.S. market, horizontal integration among airlines accelerated around 2008. The three major U.S. airlines?Delta, American, and United Airlines?all grew into mega carriers through mergers and acquisitions (M&A).

On the other hand, countries with similar population and economic power to Korea, such as Japan (Japan Airlines and All Nippon Airways) and Taiwan (China Airlines and EVA Air), have relatively few cases of adopting a multiple large airline system. Especially recently, as the global aviation industry faces a crisis due to the COVID-19 pandemic, the trend toward consolidation has become even steeper. Even in Japan, where large-scale restructuring saved Japan Airlines, talks of integration with All Nippon Airways have recently resurfaced.

Domestically, considering the limited market size, there is analysis that a single large airline system is more suitable. Professor Hwang Yong-sik of Sejong University presented research results at last year's Korean Air Management Association autumn academic conference, analyzing data based on ▲GDP per capita of 79 countries worldwide ▲number of outbound travelers ▲air passenger numbers, concluding that a system with a single large airline and multiple low-cost carriers (LCCs) is appropriate for Korea.

Professor Hwang said, "European-style restructuring is difficult to adopt given our reality of low air liberalization with neighboring countries, and the Japanese model also has clear limitations. Pursuing a mega carrier through airline M&A, as in the U.S., is a realistic alternative. As seen in the Hyundai-Kia Motors case, competitiveness can be sufficiently secured through horizontal integration."

The industry consensus is that the synergy effects from consolidation will be considerable. Immediately, the cargo sector, which has become the only source of revenue for the aviation industry due to COVID-19, can further strengthen economies of scale. Although currently halted due to COVID-19, the synergy effects in the passenger sector, which accounts for 80% of sales, are also noteworthy.

A senior official of a national airline said, "Currently, the two airlines overlap in schedules and aircraft on major long-haul routes, causing mutual losses, but after acquisition, diversifying schedules and aircraft can increase not only domestic outbound demand but also foreign transfer demand from Southeast Asia and other regions." He added, "In the post-COVID-19 era, the synergy effect in the passenger sector will be even greater than in the cargo sector."

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