Big Deal Jeopardized
The U.S. Department of Justice (DOJ), which is reviewing the merger and acquisition (M&A) of Korean Air and Asiana Airlines, has indicated to Korean Air that it will be challenging to approve the merger without a competitor comparable to Asiana.
According to sources in the aviation industry and investment banks on May 22, the DOJ, currently evaluating the M&A between Korean Air and Asiana Airlines, recently communicated to Korean Air that it would be hard to approve the merger without a competitor of Asiana's caliber. In response, Korean Air proposed to resolve the monopoly issue by bolstering low-cost carrier (LCC) Air Premia, but the DOJ rejected this proposition. If Korean Air cannot present an alternative solution to the monopoly issue by the start of August, the DOJ is considering legal action to deny the merger. It is therefore highly probable that this “big deal” between the first and second-ranked domestic airlines could fail.
The actions of the DOJ are viewed as being more stringent than the European Union's (EU), which demanded an immediate return of slots and transport rights for monopoly routes. If a merger disapproval decision is rendered in either the U.S. or the EU, which are mandatory reporting countries, the merger between the two companies will be voided.
Out of the 13 American routes operated by Korean Air and Asiana, five routes (San Francisco, Honolulu, New York, L.A., and Seattle) are perceived as having a risk of monopoly. United Airlines is the sole competitor on the San Francisco route, with a market share of only around 20%, while Hawaiian Airlines is the sole competitor for Honolulu. The remaining routes are monopolized by Korean Air (including Delta Airlines) and Asiana Airlines. The Korean Fair Trade Commission, which conditionally approved the merger of the two companies in February of the previous year, assessed that a monopoly would occur on 26 international routes and 14 domestic routes. At the time, the Fair Trade Commission ordered the return of slots and transport rights but effectively deferred the merger judgment to overseas competition authorities by granting a correction period of 10 years.
According to competition authorities and others, United Airlines, the second-largest airline in the U.S., has consistently expressed negative opinions about the merger of Korean Air and Asiana to the DOJ. This is because Korean Air and Delta Airlines are members of the SkyTeam alliance, sharing high-level functions such as ticketing. There was also concern that Asiana might be removed from the Star Alliance, which it shares with United Airlines, due to the merger.
Korean Air proposed domestic LCC Air Premia as an alternative solution to the DOJ's antitrust concerns. This was based on the fact that Air Premia has been expanding its operations recently, including increasing its number of American routes. However, the DOJ did not accept this, judging that Air Premia, a nascent LCC, could not stand up to the combined force of Korean Air and Asiana.
As nationalistic priorities are spreading, there have been increasing instances of industrial M&As failing due to foreign competition authorities. A representative case occurred in 2021 when Air Canada, Canada's leading airline, attempted to acquire Air Transat, but couldn't overcome the EU competition authorities' hurdle.