South Korea to protect competition after Korean Air and Asiana merger (Reuters)

Author: Lisa Barrington

SEOUL (Reuters) – South Korea will support smaller airlines and monitor market competition after dominant carrier Korean Air completed a $1.3 billion purchase of Asiana Airlines on Thursday to create one of Asia’s biggest carriers. Korean Air bought a 63.88% stake in the country’s second-largest airline, making it a subsidiary three years later than Asiana originally expected. An enlarged Korean Air group could account for just over half of South Korea’s passenger capacity and become the world’s 12th largest airline by international capacity, according to a Reuters analysis of airline data from Cirium and OAG.

According to its 2023 financial results, it would rank with China’s top three state-owned carriers as one of the largest in the Asia-Pacific region by revenue.

South Korea’s transport ministry unveiled measures to boost competitiveness in the domestic aviation industry on Wednesday, such as additional medium- and long-haul rights for low-cost carriers, Yonhap news agency reported.

The Fair Trade Commission (FTC) intends to set up a commission by March to monitor Korean Air’s compliance with the terms attached to the merger approval, which it finalized on Wednesday.

The terms include a pledge by Korean Air not to allow seat capacity to fall below 90% of 2019 levels on key routes, the FTC filing showed.

Korean Air said there would be no layoffs.

“The combined organization projects natural staff growth through business expansion, with employees in overlapping roles being transferred within the organization,” the statement said.

Shopping was difficult due to competition. Korean Air had to make significant concessions around the world, including handing over routes to other airlines and selling Asiana’s cargo operations, to complete the deal.

It is the longest airline merger to be completed and was first announced in November 2020 to bail out debt-ridden Asia, which has struggled with falling demand during the COVID-19 pandemic.

Asiana will be run as a subsidiary for up to two years before being integrated into a single airline that retains the Korean Air name but with a new brand.

Korean Air will also create a single low-cost carrier, and its integration strategy includes expanding flight schedules on overlapping routes, adding new destinations and investing more in security, the statement said.

A plan to merge the two airlines’ frequent flyer programs will be submitted to the FTC for review by June 2025, Korean Air said, adding that the merger would strengthen its competitive position globally.

The airline said the deal aims to increase the network capabilities and reach of Incheon International Airport, the world’s fourth-busiest for international flights and fifth-busiest for cargo, which competes with Asian hubs in Hong Kong and Singapore.

Airline consolidation is less common in Asia than in Europe, which has seen a wave of mergers over the past two decades, and in North America, where regulators fear the industry is too concentrated.

Asiana will hold an extraordinary general meeting of shareholders on January 16 to appoint new board directors appointed by Korean Air.