Korean Air integration, Asiana Airlines, low cost carriers, largest airline in the world

Korean Air Moves Toward Integrating Asiana Airlines

Since last year, the Korean Air and Asiana Airlines merger has been a hot subject in the Korean Air News. The largest airline and flag carrier of Korea in terms of fleet size, Korean Air takes over Asiana Airlines to form the world’s 15th largest airline in terms of kilometres per passenger.

Korean Air endorsed a contract to buy Asiana’s new shares and perennial convertible notes in November 2020. Following the deal, Korean Air undertook extensive due diligence and developed the post-merger integration (PMI) plan. On March 17, 2021, Korean Air presented this plan, including the two airlines’ merger business strategy, to the Korean Development Bank (KDB).

The state-owned bank evaluated the proposal for three months and made modifications in collaboration with Korean Air, the Ministry of Land, Infrastructure, and Transport, and other relevant authorities. The Korean Air and Asiana Airlines merger received approval from KDB on June 30, 2021, for the PMI plan. This is another significant step towards Korean Air’s acquisition of Asiana Airlines.

 

The following are the points included in the finalized PMI plan:

  • Planned integration of full-service and low-cost airlines, 
  • Measures to address holding company constraints imposed by the Fair Trade Act,
  • The retention of employees and the succession of collective agreements, as well as
  • The productive plans to reorganize necessary subsidiaries.

According to a release, the newly integrated global airline will enhance the operational efficiency of overlapping passenger and cargo routes, diversify its schedules, and extend prospects for new routes. This will further increase consumer advantages and generate integrated synergy by lowering costs.

According to Woo Kee-hong, president of Korean Air, the merger process would formally commence in 2022. This merger will enable the low-cost subsidiary to become the top-tier low-cost airline not just in Korea but also in Asia.

Korean Air’s merger with its long-term rival Asiana Airlines would result in a carrier that would operate around 60% of the country’s foreign flights in and out. This combination might provide both airlines with a competitive edge over their competitors. Furthermore, this deal is likely to help enhance the competitiveness of Seoul’s Incheon International Airport (ICN), which wants to become Asia’s major aviation centre, according to the airline.

However, noting such a large market share on the worldwide market, Korea’s FTC and other fair competition agencies across the world may still dispute the merger. As a result, Korean Air and Asiana Airlines may be forced to give up slots or traffic rights at ICN or other international airports. According to fresh statistics released, the proposal to create an integrated airline will cost an extra 600 billion won ($524 million).

As per information gathered by legislator Park Sang-hyuk, the airline would require to pay a total of 2.4 trillion won for the acquisition and the two-year post-merger integration procedure.

They will also integrate Korean Air’s booking and ticketing systems, as well as its client information, as part of the strategy. Most of its post-merger integration expenditure is projected to be spent on IT integration. Flight attendants from both airlines will also be trained to use the same system.

Since both airlines utilize distinct mileage systems, Korean Air is likely to run promotions to burn up Asiana miles rather than developing an integrated mileage system.

Korean Air has spent 1 trillion won so far as part of its 1.8 trillion won acquisition agreement, with the remaining 800 billion won needing to be paid. The airline raised EUR 3.3 trillion earlier this year by issuing new shares to contribute to its Asiana Airlines acquisition agreement. 

Korean Air CEO Woo Ki-hong earlier stated that the combination of the two airlines will generate a synergy of between 300 and 400 billion won per year after the aviation sector has completely recovered from the coronavirus epidemic. The CEO also added that the process would not result in any forced restructuring.

The five antitrust regulators, notably South Korea, the United States, the European Union, China, and Japan are yet to give the green flag to the Korean Air and Asiana Airlines merger. Korean Air gained international permission from Thailand’s fair competition regulator in May 2021, and the Turkish Competition Authority gave the airline the go-ahead in February 2020.

Korean Air has stated that it predicts the completion of integration in 2024. The CEO of Korean Air said in a press event that Asiana Airlines will become a part of Korean Airlines after the merger, eliminating Asiana Airlines’ name in 2024.

 

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