Demands Korean Air Come up with Measures to Address Monopoly Issue
Korean Air faces difficulties in getting approval from the U.S. competition authorities for its acquisition of Asiana Airlines.
“The U.S. Justice Department strongly believes that a marriage between Korean Air and Asiana Airlines will impose restrictions on fair competition, so the merger will face difficulties in obtaining approval," a Korean government official said. The issue was reportedly discussed during Fair Trade Commission Chairperson Cho Sung-wook's business trip to the United States from April 3 to 6.
Earlier, the U.S. Justice Department told Korean Air to present detailed measures to address the issue, but Korean Air submitted its plans with a significant delay.
The U.S. Justice Department has also raised the level of deliberation on the business combination between Korean Air and Asiana Airlines from simple to intensive. In particular, United Airlines, the second-largest airline in the United States, raised the issue of restrictions on competition to the U.S. Department of Justice. Korean Air is a member of the SkyTeam with Delta Air Lines, and Asiana Airlines belongs to the Star Alliance with United Airlines. United Airlines is concerned that if Asiana Airlines leaves the Star Alliance, it will adversely affect the alliance's members on routes to the Americas and routes via China and Southeast Asia.
Another problem is that U.S. fair competition authorities’ screening criteria on aviation combinations are becoming stricter. Recently, U.S. low-cost carrier Spirit Airlines rejected a US$3.6 billion (about 4.6 trillion won) takeover offer from JetBlue Air, the sixth-largest U.S. airline, on the grounds that a merger review may be rejected.
A rugged road is ahead of reviews by countries other than the United States such as the European Union (EU) and China, which are mandatory reporting countries. In particular, in the EU considered the biggest gateway to global business combinations, EU authorities reportedly announced that they would grant approval for the merger between Korean Air and Asiana Airlines only after distributing transportation rights and slots as a way to eliminate the possibility of an oligopoly right away. This is in contrast to the fact that the Fair Trade Commission gave a 10-year correction period for the distribution of transportation rights and slots between the two companies.
EU fair competition authorities are notorious for being so finicky about approving combinations of airliners that they decided to disapprove IAG’s business combination application even though IAG, Spain’s No. 1 airline group, was looking for an airline to enter the market to acquire Spain’s third-largest airline, Air Europa in 2021.
China also believes that the combination of the two companies is highly likely to undermine the profitability of Chinese airlines on Korea-China routes. If Korean Air acquires Asiana Airlines, the Busan-Qingdao and Seoul-Zhangjiajie routes will become their exclusive routes with a total market share of 100 percent. Their combined share of the Seoul-Xian service market will reach 96.3 percent. Their market share will also rise 65.3 percent on the Seoul-Shenzhen route and 66.5 percent on the Busan-Beijing route. China has clarified its position that China Eastern Airlines, Southern Airlines, China International Airlines, and Shenzhen Airlines may suffer damage from the merger.