Review Period Extended by 4 Months

The Korean Fair Trade Commission has extended the review of Korean Air's acquisition of Asiana Airlines. 

The Korean Fair Trade Commission’s review of Korean Air's acquisition of Asiana Airlines has been extended. This contrasts with a series of overseas corporate combination reviews being approved.

In January, Korean Air reported its acquisition of Asiana Airlines to nine countries including Korea. Until now, Turkey, Taiwan and Thailand have approved it.

The KFTC recently extended its contract with a domestic research institute for an economic analysis of the Korean Air-Asiana Airlines combination by four months to the end of October. This is because concerns have been raised continuously that the merger of the two companies would result in a rise in air fares.

According to a report by Rep. Park Sang-hyuk of the Democratic Party of Korea, the merged company would have a market share of over 50 percent in 32 routes of the 143 international routes operated by the two airlines. In particular, the company would have a 100 percent market share on seven routes, including those from Incheon to LA, New York, Chicago, Barcelona, Sydney, Palau, and Phnom Penh, a 75 percent or higher market share on four routes from Incheon to Honolulu, Rome, Phuket and Delhi.

If the market is converted into a monopoly due to the merger, Korea Air will secure the right to set air fares. Korean Air has repeatedly said that there will be no discretionary increase in air rates. The reason it offered is that it is difficult to raise prices arbitrarily due to the government restrictions on the upper limit of air fares and the availability of foreign airlines on most routes it serves.

Nevertheless, concerns over a fare hike still remain. First of all, the airfare cap in place is nominal because the price of a general air ticket is only 30 percent of the upper limit, meaning there is plenty of room to raise air fares. Airlines tend to set regular ticket prices at upper fare limits and sell tickets at lower prices by giving various discounts.

Rep. Park analyzed five routes from Korea to the United States which are expected to be monopolized due to the integration of the two major airlines. Park found that the lowest prices of Korean Air tickets were between 31 percent and 42 percent of the upper fare limit. In other words, ticket prices for these routes can increase three-fold.

Park pointed out that it was difficult to accept Korean Air's claim that it cannot raise airfares due to competition with foreign airlines. He noted that there are some direct routes that foreign airlines are difficult to serve.

Park and other industry experts point out that measures are needed to address concerns about a rise in airfares before approving the merger.

Copyright © BusinessKorea. Prohibited from unauthorized reproduction and redistribution