Worried about Competition
The cargo business has become one of the variables in the merger of Korean Air and Asiana Airlines entering the home stretch. It remains to be seen if Korean Air’s high-stakes tactic of offering cargo planes to its rivals will be enough to satisfy overseas competition authorities.
According to industry reports on Aug. 10, the U.S. Department of Justice (DOJ) and the European Commission (EC) are raising antitrust concerns over the marriage of Korean Air and Asiana Airlines.
Earlier, EU competition authorities pointed out in an interim review report on May 17 that the merged airline will become the largest carrier between Europe and Korea in the cargo sector, which may lead to higher fares and poor services. In addition, the U.S. DOJ was concerned about a single company controlling cargo transportation of key goods such as semiconductors, according to a series of local media reports.
According to the Ministry of Land, Infrastructure, and Transport’s aviation information portal, the amount of international cargo carried by Korean airlines in the first half of this year was 683,595 tons. Korean Air accounted for 436,018 tons and Asiana Airlines for 219,365 tons, accounting for a combined market share of 95 percent.
As a result, some experts suggest that Korean Air sell Asiana’s cargo division in its entirety or offer some of its freighters to other airlines to allay fears of a cargo monopoly after the merger.
In fact, Korean Air proposed to T’way Air to enter the cargo business with cargo planes such as the B747 and the B777. “There have been talks, but nothing has been decided,” said a spokesperson for T’way Air.
However, Korea Development Bank (KDB) reportedly has a negative view on the idea of abandoning Asiana’s main business against the purpose of the airliner’s normalization, causing its valuation to plummet. Although cargo fares fell, 425 billion won of Asiana’s 1.45 trillion won in revenue in the first quarter came from the cargo business.
This explains why there has been speculation in recent days in the investment banking industry that KDB is considering a Plan B of selling Asiana to a third party other than Korean Air. KDB immediately denied the speculation as groundless and is now trying to quash the story.