The December launch of a merged Korean Air would end a yearslong push to consolidate South Korea’s flag-carrier market
A two-track strategy pairs a global long-haul carrier with an integrated low-cost airline platform
Cho Won-tae, Chairman of Hanjin Group
[Insight Korea = Kim Ho-jin]
Cho Won-tae, chairman of Hanjin Group, is moving to put his “New Hanjin” vision into practice through what previous generations of the founding family could not achieve: the consolidation of South Korea’s national airline industry. The plan aims to position Korean Air as a global top-10 carrier while building an integrated low-cost carrier operation alongside it.
According to industry officials on May 14, Korean Air will formally launch as an integrated carrier in December after bringing Asiana Airlines under its wing. The move marks the culmination of a process that began roughly seven years ago, after Asiana Airlines was put up for sale in July 2019.
Korean Air and Asiana Airlines approved the signing of a merger agreement at board meetings on May 13 and signed the definitive contract on May 14. That effectively brings to a close legal procedures that have stretched for five years and six months since the companies entered into a share subscription agreement in November 2020.
The integration is widely regarded as one of the most symbolic events in Hanjin Group’s 80-year history. The group’s founder, the late Cho Choong-hoon, laid the foundation for what he called “serving the nation through transportation” when he acquired the financially troubled state-run Korean Air Lines in 1969. Korean Air then held a dominant position as South Korea’s flag carrier for about two decades. But after the country introduced a dual-private-airline system in 1988, Asiana Airlines emerged as a rival, setting off more than 30 years of competition for market leadership.
The late Cho Yang-ho, who succeeded the founder, helped create SkyTeam, the global airline alliance, and expanded Korean Air’s route network around the world, lifting the company into the ranks of global carriers. But even he did not end the rivalry with Asiana or complete the consolidation of South Korea’s skies.
Cho Won-tae made his move in 2020, when the Covid-19 pandemic pushed the airline industry to the brink. He chose to press ahead with the acquisition of Asiana at a time of deep uncertainty. Over the past five years and six months, Cho has navigated demanding antitrust reviews by competition authorities in 14 countries, including by agreeing to return route slots, overcoming both regulatory and managerial hurdles.
Korean Air also fully repaid 3.6 trillion won in policy funds that had been extended to Asiana Airlines during the acquisition process. In doing so, the company effectively brought a government-led restructuring phase to an end on its own terms. Hanjin Group, now in its third generation of leadership, has finally completed a single national-carrier structure.
Maximizing Synergies Between Korean Air and an Integrated LCC
Cho’s central strategy is a two-track structure: Korean Air will focus on long-haul routes, while an integrated low-cost carrier combining Jin Air, Air Busan and Air Seoul will target short- and medium-haul markets. Korean Air is expected to absorb Asiana’s fleet and strengthen its position as a global mega-carrier, while the integrated LCC is intended to capture demand in regional markets and improve profitability.
Under the merger agreement, Korean Air will assume all of Asiana Airlines’ assets, liabilities, rights, obligations and employees. The merger ratio has been set at one Korean Air share for 0.2736432 Asiana Airlines share.
Korean Air is also accelerating large-scale infrastructure investment aimed at improving safety and service quality. The company has remodeled its Operations Control Center and cabin training center at its headquarters in Seoul’s Gangseo district. It is also expanding major maintenance facilities, including an engine test cell and a new engine maintenance plant. Through fleet standardization and the internalization of outsourced maintenance work, the company is expected to cut fixed costs by hundreds of billions of won annually.
A company official said Korean Air plans to standardize pilot training programs across the two carriers to prevent disruption immediately after the launch and provide safe air travel.
Another key pillar is strengthening the transfer network centered on Incheon International Airport. Industry analysts say that even if some of Asiana’s U.S. and European slots are returned, the merged carrier’s extensive slot portfolio could allow it to connect passengers from Southeast Asia and Japan to the Americas through Incheon, giving it hub dominance that could outpace rival global airlines.
Analysts See Earnings Impact From the Fourth Quarter; Regional Tensions Remain
Financial analysts are taking a positive view of the integration. Jung Yeon-seung, an analyst at NH Investment & Securities, said in a report that the merger would allow the company to combine overlapping infrastructure in aircraft maintenance, ground handling, in-flight meals and overseas sales networks. That, he said, would lead to fixed-cost savings and the full-scale benefits of economies of scale.
He added that expectations for synergies are likely to build from the fourth quarter, when some of the benefits from integrated operations begin to be reflected in earnings. The merged entity, he said, is expected to become the clear No. 1 operator in South Korea’s aviation market.
A Korean Air official said the launch of the integrated carrier is intended to preserve the competitiveness of South Korea’s aviation industry, strengthen Incheon International Airport’s hub function and expand the country’s global aviation network. The company will continue making pre-emptive investments and efforts to improve safe operations and customer service, the official said, building a foundation to compete with global mega-carriers.
Still, several issues remain before the integrated structure launches in December. The Fair Trade Commission has yet to make its final judgment on the mileage conversion ratio, one of the biggest issues for consumers. The proposed ratio is 1-to-1 for flight miles and 1-to-0.82 for partner miles. Opposition from the Busan community over the location of Air Busan’s headquarters is also seen as one of the final challenges Cho must resolve to anchor the “New Hanjin” vision.
- This article was translated by ChatGPT. (이 기사는 챗GPT가 번역했습니다.)
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