Korean Air-Asiana merger to spur M&A among budget carriers

Gimpo International Airport in Seoul (File photo)

Korean Air Lines Co.’s prospective acquisition of Asiana Airlines Inc. is expected to spur domestic budget carriers to seek combinations as the merger of the two domestic aviation industry leaders is predicted to create the country’s largest low-cost carrier (LCC).

Korean Air, the country’s top full-service carrier, said on Thursday it has secured final approval from the European Commission, the region’s antitrust body, for the merger with Asiana, taking a step closer to concluding the 1.8-trillion-won ($1.3 billion) deal and become one of the world’s 10 largest airlines.

Korean Air plans to integrate the operations of its LCC subsidiary Jin Air Co. and those of Asiana’s budget carriers – Air Busan Co. and Air Seoul.

The move will create the country’s largest LCC with a fleet of 55 aircraft and sales of 2.5 trillion won ($1.8 billion) as of 2023. The three low-cost airlines accounted for 14.9% of the country’s international flights last year.

“We need to improve those LCCs’ competitiveness and cost efficiency through integrated operations,” said a Korean Air official. “The three carriers will discuss when to launch the combined entity.”

The current local No. 1 budget airline Jeju Air Co. with a fleet of 42 aircraft reported revenue of 1.7 trillion won with an international passenger flight market share of 10.8% in 2023.

ACQUISITIONS

Jeju Air has already considered potential acquisitions of smaller competitors.

“Airlines owned by PEFs will eventually be subject to sale. If an M&A opportunity arises, we will actively respond,” Jeju Air Chief Executive Kim E-bae recently sent an email to company executives and employees in July, referring to private equity firms.

Among local budget airlines, Air Premia Inc., Eastar Jet Co. and Air Incheon Co. are owed by PEFs.

T’way Air Co. is also striving to rise to the top place in the country’s LCC sector. Korean Air handed over four profitable European routes, including a service between the country’s main gateway Inchon and Paris, to T’way as part of the conditions set by aviation regulators for its merger with Asiana,

The budget carrier took over five aircraft and about 100 staff including pilots and flight attendants.

South Korea’s largest resort operator Sono Hospitality Group bought stakes in T’way and Air Premia to become their second-largest shareholder.

“Sono has been keeping an eye on airlines to expand its businesses,” said an LCC industry source.

“Sono is expected to become T’way’s top shareholder by purchasing its stocks in the market anytime as its stake is not much smaller than the current No. 1 shareholder YeaRimDang Publishing Co.,” said the source. “If Sono with deep pockets takes management control of T’way, that will share the entire LCC industry.”

By Jin-Won Kim

jin1@hankyung.com

 
Jongwoo Cheon edited this article.

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