South Korea’s antitrust agency the Korea Fair Trade Commission has “conditionally approved” Korean Air’s planned KRW1.8 trillion won (USD1.5 billion) acquisition of a 63.88% stake in its rival Asiana Airlines, the authority outlined in a document released on February 22.
One of the conditions is that for 26 out of the 65 international passenger routes where the airlines overlap, and for 14 of the 22 domestic routes they both operate, Korean Air and Asiana together with their low-cost subsidiaries Air Busan, Air Seoul, and Jin Air must over the next 10 years give slots and traffic rights to any newly competing airline that requests them.
The agency said that this “structural measure” would “promote new entry by competing airlines to domestic and international routes that have limited competition.”
Until such competing airlines seek slots and traffic rights, Korean Air is restricted from raising fares above the inflation rate compared to pre-Covid 2019 prices. It also cannot reduce the number of seats provided, and service quality such as seat pitch and free baggage must be maintained.
The routes in question are where the airlines’ combined market share exceeds 60%, where there are few or no competitors, and where the commission has said it sees a high chance of a rise in ticket prices.
The relevant international routes include 15 liberalised routes, from Seoul to New York, Los Angeles International, Seattle Tacoma International, Honolulu, San Francisco, Barcelona El Prat, Phnom Penh, Koror, Phuket, Guam International, and from Busan to Qingdao Jiaodong, Da Nang, Cebu, Nagoya Chubu, and Guam.
For an additional 11 non-liberalised routes, from Seoul to Frankfurt International, Rome Fiumicino, London, Paris, Beijing, Istanbul Airport, Zhangjiajie Hehua, Xi'an Xianyang, Shenzhen, Jakarta Soekarno-Hatta, and Sydney Kingsford Smith, if a new airline competes or an existing airline increases capacity, the merged carrier is obliged to return used tickets.
The 14 domestic routes where the slot transfer rules apply are from Jeju to Busan, Cheongju, Gwangju, Jinju, Seoul Gimpo, Ulsan, and Yeosu/Suncheon, and their return directions.
The Fair Trade Commission said it had looked at 119 routes that would overlap if the two full-service and three budget carriers combine into one company, including international and domestic passenger and cargo routes.
In an effort to accelerate a final decision on the merger, the commission said it was finalising an action plan to assist competition authorities in the United States, the United Kingdom, Australia, the European Union, Japan, and China which have not yet reached their own conclusions on the deal. Eight other countries have so far approved the merger.
In response to the South Korean antitrust agency’s approval, Korean Air issued a statement saying it “respects the decision of the KFTC and will continue its efforts to receive approvals from the remaining regulatory bodies.”
