Strong customer choice in the air cargo market is a key reason behind the government of Singapore giving Korean Air the green light for its merger with Asiana Airlines. The decision follows Korean Air’s recent announcement that it turned an operating profit in the fourth quarter despite negligible passenger traffic because of record cargo revenue.
Korean Air said Tuesday that Singapore’s Consumer and Competition Commission determined its acquisition of its smaller domestic rival would not harm consumers and businesses. The airline said it has been notified that the merged entity is unlikely to raise ticket prices due to the high degree of competition from competitors such as Singapore Airlines and wouldn’t reduce competition on cargo flights because Singapore serves as a major transit point for many cargo flights and Singapore Airlines offers a large cargo service.
The Federal Trade Commission is expected to soon give conditional approval for the merger if the carriers give up some airport slots and transportation rights to certain regions, according to South Korean news outlets.
Regulators in Turkey, Taiwan, Vietnam, Thailand, Malaysia and the Philippines have approved Korean Air’s takeover of Asiana so far. Finalizing the deal will require clearance from the U.S., European Union, China, Japan, the U.K. and Australia.
In November 2020, Korean Air agreed to take a controlling interest in Asiana. The deal was valued at $1.5 billion at the time and would create the 10th-largest airline by fleet size. Asiana has been especially harmed by the widespread suspension of flights due to COVID travel restrictions in many countries. Korean Air plans to save money through streamlined routes and reduced maintenance costs.
Korean Air generated $2.2 billion in cargo revenue during the fourth quarter, its best performance ever. Cargo sales accounted for an incredible 91.6% of the company’s total revenue of $2.4 billion. The airline achieved all-time records for both quarterly ($594.2 million) and annual ($1.2 billion) operating profits in the company’s 53-year history thanks to the cargo division.
Korean Air is the sixth-largest cargo airline by throughput, according to the International Air Transport Association. It has four Boeing 747-400, seven 747-8 and 12 777 freighters.
The fleet has been operating full throttle since the pandemic began and the airline repurposed many grounded passenger planes for cargo operations to utilize their lower-deck and cabin space, even removing seats from some planes to create more room for cargo. Through last August it had operated more than 10,000 cargo-only passenger flights.
Perhaps more crucial to the revenue gain than the deployed assets were extremely high airfreight rates attributable to high demand during the end-of-year holiday rush and ocean shipping disruptions combined with ongoing shortages of passenger aircraft belly space.
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
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