Korean Air strategy: Sell Asiana’s cargo division to secure approvals

On June 17, the Korean Air Board of Directors indicated that Air Incheon had been selected as the preferred bidder for Asiana’s cargo division. The move to sell Asiana's cargo division, originally announced in September 2023, is i ntended to address regulatory hurdles brought on by non-competition concerns of Korean Air's attempt to acquire Asiana’s more lucrative passenger division . The sale of Asiana’s cargo division is expected to alleviate concerns about market monopoly and maintain a competitive balance in the airline industry. Overview

Korean Air, the flag carrier of South Korea , was f ounded in 1969 and has long been a major player in global aviation . Known for its extensive international network and elevated level of service, the carrier serves 101 cities in 39 countries, as well as 10 domestic destinations . As of June , Korean Air operate d a fleet of 159 aircraft, including 23 freighter s .

Asiana Airlines, also based in South Korea and founded in 1988 , has built a strong reputation as a rival, with its operational excellence and customer service . As of June , t he airline operate d 90 international passenger routes, 14 domestic passenger routes and 27 cargo routes throughout Asia, Europe, North America and Oceania. It has a fleet of 79 aircraft, including 11 freighters. The a cquisition d eal

Korean Air i n November 2020 announced plans to acquire Asiana Airlines , v alued at about $ 1.4 billion , in a deal aimed to create a more robust and competitive airline capable of withstanding global market challenges. Th is acquisition is expected to generate significant synergies, enhance route networks and improve operational efficiencies for Korean Air.

Korean Air hopes to complete the acquisition by October 2026 to elevate it to a leading world’s leading airline . Regulatory challenges

Antitrust concerns As with most airline mergers, the acquisition immediately came under scrutiny from regulatory authorities due to concerns about potential monopolistic practices. The combined market share of Korean Air and Asiana Airlines in the South Korean aviation market — 34.7% for domestic passengers and 33.7% for international — raised alarms about reduced competition. Many opponents fear that the large market share could lead to monopolistic practices, leading to higher prices and reduced service for consumers. They hold that ensuring fair competition is crucial in the airline industry to prevent dominance by a single entity. Global regulatory approvals The Korean Fair Trade Commission is the primary regulatory body reviewing the deal . Additionally, international regulatory bodies, including those in the United States, the EU and China, are examining the deal to ensure compliance with global antitrust laws and competition standards. While 13 nations have been satisfied, final approval from the U . S . is still undecided. Japan Approval The Japan Fair Trade Commission (JFTC) approved the deal on Jan . 31 . The JFTC’s approval included conditions to cede slots on certain Korea-Japan routes to ensure fair competition. European c oncerns Korean Air received approval for its merger with Asiana Airlines on Feb. 13 after agreeing to most of the conditions set by the European Commission. These conditions include selling Asiana's profitable cargo division, exiting certain routes between South Korea and the EU , and giving up slots at EU airports. T'way Air , a Korean low-cost carrier, is preparing to take over four routes from Asiana — Rome, Barcelona, Frankfurt and Paris — to mitigate competition concerns . US a pproval In a May interview, Korean Air president Woo Kee-hong was optimistic about the acquisition , with the final U .S. approval pending and expected by the end of October ; th is will be the last of 14 required approvals . Decision to sell Asiana cargo division

In another measure to address regulatory concerns, Korean Air indicated that it would sell Asiana’s Cargo division. This move aims to reduce the combined market share in the cargo sector, most notably international cargo with a 64.3% combined market share. By divesting this division, Korean Air hopes to demonstrate its commitment to maintaining a competitive market environment. Asiana's Cargo division, valued at about $361.8 million, generated $1.159 billion in revenue in 2023, compared with $2.158 billion in the previous year. Potential buyers

Several industry players expressed interest in acquiring Asiana’s cargo division. Potential buyers include airlines with established cargo divisions looking to expand and airlines looking to enter the cargo sector . When the bidding process began in February 2024 , four airlines in Korea expressed interest: Eastar Jet , Air Premia , Air Incheon and Jeju Air , with only Air Incheon and Jeju Air operating freighters at the time.

Jeju Air steps down

During the bidding process for Asiana Airlines' cargo division, Jeju Air, once the front-runner, withdrew from the competition , electing not submit a bid by the April 25 deadline . No bid was submitted due to financial constraints and its failure to form a consortium with a financial investor.

Air Incheon preferred bidder

On June 17, the Korean Air Board of Directors indicated that Air Incheon was the preferred bidder for Asiana’s cargo division. Although it is the smaller bidder by sales, Air Incheon has an advantage due to its specialization in cargo transport and the potential synergy with its existing business.

Air Incheon, which generated around $50 million in revenue last year, attracted Korean Air with its expertise in operating cargo-only flights and its early fundraising from local investors. The acquisition of Asiana's cargo division would position Air Incheon as the second-largest cargo carrier in South Korea, second only to Korean Air. Figure 1 - Combined Route Network

Air Incheon fleet impacts

Air Incheon is in for a significant learning curve . It operates four Boeing 737- between 12 destinations within Asia. It is set to acquire a Boeing 767-300F and 10 Boeing 747-400Fs, a combination of - BDSFs and - FSCDs. Asiana’s cargo network expands well beyond Asia with 26 destinations around the globe.

The average age of Air Incheon’s fleet will take a bit of a hit, increasing from 23.9 years to 26.7 years after acquiring the Asiana fleet. However, as reported by our sister publication Cargo Facts , Air Incheon is planning to replace some of its 747s that are approaching the end of their useful life. The carrier indicated to Cargo Facts that it is evaluating all three 777-300ER conversion programs and production 777Fs hinting that Boeing’s new 777-8F is not out of the question. Air Incheon had hoped to expand into the widebody market, but the possible purchase of Asiana’s cargo division has expedited the matter.

The unique 767-300F will likely need to be replaced and an A330-300F could be a solution. Air Incheon indicated that it may look at multiple A330-300Fs to allow it to operate higher frequencies on certain high-yield routes. The carrier is evaluating both EFW's A330-300P2F program and IAI's in-development A330-300BDSF program. Figure 2 - Fleet Analysis

[caption id="attachment_57285214" align="aligncenter" width="600"] Source: Cargo Facts analysis CH-Aviation data[/caption] Conclusion

Korean Air’s decision to sell Asiana’s cargo division is intended to overcome regulatory challenges and secure approval for the acquisition. The sale not only addresses antitrust concerns but also strengthens Korean Air’s financial position. As the acquisition progresses, Korean Air is well-positioned to capitalize on new opportunities and solidify its standing as one of the world’s leading airlines.

For Air Incheon , the possible purchase is also exciting , allowing it to become more competitive and enter lucrative long-haul markets to E urope and the Americas. However , there will likely be learning curves associated with the expanded fleet and new aircraft types.

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