Created by the Korean industrial group Kumho in 1988, Asiana Airlines had gradually become South Korea's second largest international airline. Initially present on Asian regional routes, the carrier arrived in Europe in the early 2000s. Prior to covid, it was present in Europe at ParisBarcelona, Frankfurt, Istanbul, London, Rome and Venice. Asiana also served five cities in the United States, as well as SydneySaipan and Palau in the Pacific. Asiana is a member of Star Alliance since 2003.
A poorly managed chaebol
Belonging to the Kumho Asiana chaebol (a consortium in Korea) is one of the sources of Asiana's problems. Kumho has a highly diversified business with no economic logic. As a result, the chaebol has become heavily indebted over the last decade. Kumho was therefore looking to get rid of its loss-making activities, including Asiana Airlines.
The company's exponential growth and diverse fleet - from Airbus A380s to Boeing 767s - have plunged Asiana into the red. In 2019, the airline began streamlining its network by discontinuing around ten routes. It also stopped marketing its first class.
But these measures are not enough. A renewed political tensions between Korea on the one hand and China and Japan on the other affected traffic on regional routes since 2019. Added to this, since 2020, is the covid crisis with the closure of the borders.
Last December, Kumho convinced HDC Hyundai Development and a brokerage firm to buy Asiana Airlines for around 2.25 billion dollars. But Asiana's mounting debt and the covid crisis caused negotiations on a revised deal to break down in September. Kumho therefore turned to the Hanjin Group, owner of Korean Air.
The group has the backing of the Korean Development Bank (KDB), which will cover part of the cost of acquiring Asiana.
A mega-company in the making
According to a Hanjin press release issued on Monday 16 November, " The main objective of this acquisition is to stabilising South Korea's aerospace industry in the context of the coronavirus pandemic and improve its competitiveness. In general countries with a population of less than 100 million have only one major traditional carrier. However, Korea has two. This puts it at a disadvantage compared with countries such as Germany, France and Singapore. They only have one major airline." says the group in its press release.
The merger should propel Korean Air into the top ten global airlines
The merger should propel Korean Air to the top the world's top ten airlines in terms of fleet size. Together, the two companies 259 machines. However, a rationalisation is to be expected over time.
The merger will further enhance the attractiveness of the Seoul Incheon hub with a single operator present on every continent with a network of 200 destinations. On the domestic market, Korean Air - with all its low-cost subsidiaries - should now represent more than 60% of all passenger traffic.
In Europe, Korean Air will operate routes to around twenty destinations. From duplicate flights like those between Incheon and Frankfurt, London, Paris or Rome will disappear. This will benefit thealliance Skyteam of which Korean Air is a member along withAir France-KLM. The loser, on the other hand, will be Star Alliance which will see the departure of a valuable ally in North-East Asia.
