In November 2020 – while the pandemic wrecked the aviation sector – Korean Air and Asiana Airlines revealed plans to merge their businesses as Asiana faced collapse. Prior to the pandemic, there had been a number of times when the two airlines were close to a partnership. However, it was Covid-19 that forced the issue.
It’s taken nearly four and a half years of planning, regulatory approvals and the necessary swallowing of pride but finally at least all the necessary approvals are in place and it’s just a matter of “dotting the i’s and crossing the t’s”.
But what does it all mean, and will we see any differences in commercial operations?
Both Korean Air (KE) and Asiana (OZ) are more than just legacy passenger airlines – they both have interest in low-cost carriers (LCCs); Korean with Jin Air and Asiana with Air Busan. These will most likely merge as part of the process and the two airlines also have dedicated cargo divisions with their own fleets that will need to be merged. Overlay those factors with a high degree of network and schedule duplication, some fleet differences, various alliance partners and some major markets still recovering and there’s a lot to think about! So, where do you begin?
The Short Haul Fleet
While both carriers are A320 operators and have outstanding deliveries (with Korean expecting new B737-800s from later this year) there is no real preference of aircraft type between the two carriers which may require some tidying up over time. Korean own all but four of their B737/A320 fleets, while 15 of Asiana’s A320s (63%) are leased – so both airlines adopted different financing strategies which may have reflected their respective financial positions in recent years. Ultimately, in the medium term the combined airline may well have to operate a mixed fleet and make the best use of the different aircraft as they can.
The Long-Haul Fleet
Intriguingly, both airlines currently continue to operate the B747 and together operated over 3,300 sectors on the aircraft type last year, and while Korean Air have some sixteen B787-9/10s scheduled for delivery over the next three years it will hardly fill the gap of those thirty B747s. So, the combined airline is stuck with a large and expensive aircraft type for probably the next decade in some shape or form which will be good for the avgeek seeking their last dose of reliable B747 flying in the future!
The Network Challenge
Two competing airlines, operating from the same base and merging means plenty of network duplication and nearly identical scheduling on long-haul services. The two airlines compete head-to-head on 84 international routes supplying 25.8 million seats per annum with a 54:46 split between KE and OZ. Japan and China feature heavily as you would expect with the shorter international sectors and there will need to be some adjustments in those markets but it’s perhaps the real long-haul sectors where major work is required.
Both airlines operate to all the major European capital cities, in most cases on a single daily frequency and in nearly every case within a two-hour competing schedule built around lunchtime departures from Seoul Incheon. Competing head-to-head with such capacity with large proportions of connecting traffic to secondary Chinese and Japanese destinations will have to change – perhaps a move towards a second wave of late-night services from Incheon to build a new series of connections. However, that’s simple to say and going to be difficult to achieve given slot availability at some of the major European airports, finding early morning arrival times at Heathrow for instance will be very hard unless some nice partner creates space for them; could that be Virgin, KLM, Air France or even Delta Air Lines?
The situation on the North American market is going to need a similar radical rethink and while Korean Air have nearly twice as many services to the United States as Asiana, something will have to give. KE017 departs for LAX at 14:30 and OZ202 at 14:40 with both carriers using A380 equipment and that cannot be sustainable going forward however strong the market. And just for good order, both airlines operate evening services within an hour of each other, again on A380s. If nothing else, this is an easy dropping of frequency, creation of some more significant route profitability and a saving in carbon emissions surely. It will also probably lead to the scrapping of some A380s between the two carriers.
The Network Structure
Incheon has the potential to be one of the world’s super hubs exploiting its geographic position and for many years with that historic connectivity to China and Japan. In 2019 there were some thirty-seven destinations served in China with more than 200 flights a year (4 x weekly) by a combination of Asiana and Korean Air, last year only 28 were served with such frequency as China’s sluggish international recovery impacts Incheon’s connecting traffic.
Similarly, Japan, a valuable source of connecting traffic especially to those secondary cities requiring a Narita- Haneda transfer, has experienced a slight drop in the number of markets served. However, perhaps the missing trick in the Japanese opportunity is that currently two-thirds of flights from Incheon are to either Kansai, Narita or Fukuoka. Structurally and geographically Incheon feels like it should be what Amsterdam is to provincial UK markets but with a bit of an Asian flavour; for some reason it just hasn’t happened perhaps in part because Japan’s secondary/regional airports have been reluctant to support such services; that may change in time.
Alliance Support Will Be Crucial
The newly merged airline is going to need all the help they can get and that includes leveraging the powerful joint venture in place with Delta Air Lines on the transpacific and kissing goodbye to Asiana’s Star relationship. There is no doubt that Delta will continue to bring valuable support to the combined network along with other partners such as KLM/Air France and could in time lead to a reduced level of service to Frankfurt which will at least please Lufthansa who themselves use B747-800’s on the route so are hardly short of capacity!
For the Skyteam Alliance a strengthened position in the North East Asian market will be very welcome given that they have no Japanese member, it could allow the alliance to become more aggressive in taking revenue out of Japan using that potential connectivity angle highlighted earlier but will certainly require some network changes.
The Low-Cost Relatives?
Two evenly sized airlines again operating against each other provides an opportunity for consolidation and that is likely to happen pretty quickly. Recent events may give a slight leaning towards the Air Busan name continuing on and since it’s the Asiana LCC could be seen to be a more equitable and even transformation of operations with both sides forsaking one operating brand. While brand values are always important in the LCC sector, price is king and ultimately price is a function of costs so whoever has the lowest current and long-term cost base is going to be the winner amongst the relatives.
When Does This All Happen?
After four years everyone seems eager to move forward quickly, and we should expect to see some early changes from the summer 2025 programmes. But, more realistically such big mergers take time, and it may be two years or more before we see a very different operation from what we see today. Undoubtedly expensive “expert” consultancy time will be spent making numerous recommendations, but the task required is clear, the execution is going to be the interesting part and that’s for the local management to deliver.
