Government “no price increases due to airline mergers and acquisitions”, but … Not allowed in Australia and New Zealand

Enter 2020.11.19 06:00

Concerns about Korean Air monopoly and Asiana M&A … Government “no price hike”
Competition authorities in Australia and New Zealand denied the permit, saying, “It is against the interests of the people.”

Korea Development Bank Korean Air (003490)is Asiana Airlines (020560)While promoting mergers and acquisitions, the government insists that there is no consumer harm from the monopoly. It is about taking measures to avoid excessive increases in airline ticket prices.

However, due to the characteristics of the aviation industry with relatively high barriers to entry, price increases and other negative effects are expected to be inevitable in the medium to long term due to the formation of a monopoly. For this reason, foreign companies have banned the sale of shares of insolvent airlines to other airlines. The airline industry and the business community are paying attention to the decisions that the Fair Trade Commission will take, which approves the merger of the two companies.

Korean Air and Asiana Airlines’ domestic passenger share exceeded 60% last year when affiliates such as LCC were combined. The Fair Trade Commission believes that if the market share exceeds 50% after merging the two companies, there is a possibility of restrictions on competition.

Furthermore, as the aviation industry requires huge capital investments, it is not easy for new entrants to immediately scale up and the monopoly structure is likely to be fixed. It is a situation where consumers have to use it as “weeping and eating mustard” because a substitute is not adequate. Even though this is a competitive system with foreign airlines, it is difficult for consumers to respond due to service preferences for domestic airlines.

In the past, in Australia and New Zealand, mergers and acquisitions between airlines have been canceled due to the judgment of competition authorities concerned about the monopoly. In 2002, Qantas Airlines, Australia’s number 1 airline, pursued a merger and acquisition by acquiring a 22.5% ($ 275 million) stake in Air New Zealand Airlines. Air New Zealand Airlines filed for bankruptcy in 2001 due to financial difficulties and the New Zealand government took over approximately 80% of its stake.

However, the competition authorities of both countries did not approve it, saying: “It is against the interests of the people” and in the end the takeover attempt was blocked. This is based on the judgment that if Qantas Airways acquires a stake in Air New Zealand Airlines, it will create a monopoly on air routes in Oceania. It is believed that the decline in consumer welfare, such as price increases due to the fight against competition, outweighs the economic effects of mergers and acquisitions.

At the time, the New Zealand Trade Commission (NZCC) stated: “The monopoly damage caused by the combination of the two companies is estimated to range from a low of $ 220 million to a high of $ 432 million, while the effect economic is only $ 30.2 million up to a maximum of $ 46.3 million. ” “The damage caused by the monopoly is more than the economic effect of combining the two companies,” he said. Following this decision, Air New Zealand Airlines is still a state-owned New Zealand airline.

The FTC is known to be in trouble ahead of examining the business combination of Korean Air and Asiana Airlines. In terms of market share, etc., it is necessary to examine whether or not there are restrictions on competition due to monopoly, and at the same time determine whether Asiana Airlines is unable to recover. If Asiana Airlines is unable to recover, it can be approved regardless of whether or not there is a restriction on competition.

Inside and outside the FTC, there is also an opinion that the FTC should not repeat the precedent, such as establishing an automotive monopoly by making the decision to approve the merger and acquisition of Hyundai-Kia. Motors. Although Hyundai and Kia Motors are separate companies, after the merger, a monopoly system was formed in the domestic market and the damage was passed on intact to consumers.

FTC and competition law academics point out that the merger of Korean Air and Asiana Airlines could lead to a similar outcome to the merger of “Hyundai-Train”, considered a representative example of a merger and acquisition license error . Additionally, as the FTC recently issued a “Yogiyo Sale” as a condition for approving a merger between People of Delivery and Delivery Hero (DH), it was decided that it is virtually irrelevant. There is also an opinion.