Korean Air’s takeover of Asiana was recently finalized, creating a new mega-airline in South Korea. There’s no denying that Delta is a big winner with this development, since Delta owns a stake in Korean Air, and also has a transpacific joint venture with the airline.
With Korean Air getting even bigger across the Pacific, is the Delta and Korean Air joint venture becoming too powerful, though?
In this post:
Delta & Korean Air joint venture will have 81% market share
Patreon account Enilria makes an interesting argument for the Delta and Korean Air joint venture becoming too powerful. He points out that with the acquisition of Asiana, the Delta and Korean Air joint venture will control 81% of the market between the United States and South Korea.
For those not familiar with the concept of a joint venture, the idea is that it grants airlines anti-trust immunity, and allows them to coordinate fares and schedules. It’s the equivalent of eliminating a competitor in a market. It’s worth emphasizing that all of the “big three” US carriers have transpacific joint ventures — American has Japan Airlines, United has All Nippon Airways, and Delta has Korean Air.
Enilria is shocked that the Department of Transportation (DOT) endorsed the Korean Air and Asiana merger without extracting any concessions, even though other regulatory bodies did negotiate concessions as part of the merger, in order to encourage competition.
Delta has of course hyped it plans to expand its options to and from Seoul Incheon, and how the Korean Air and Asiana merger will continue to push its margins across the Pacific up (in other words, the joint venture believes it can raise fares when it has more market dominance).
Enilria concludes that he doesn’t like the idea of joint ventures in general, that Delta has control of the US government through its lobbying, and that this is the most egregious example he has seen of a joint venture allowing monopolistic behavior:
“The DOJ has endorsed Delta and Korean being able to collude to 81% control the U.S. to South Korea market with no limitation, even in markets where Asiana and the Delta JV will no longer compete.”
Why I don’t see this joint venture as being a huge deal
I have a slightly different take than the above. Is one joint venture controlling 81% of market share between two countries ideal? Absolutely not, ideally no party would control that much market share. However, a few points…
First of all, this is hardly the only country pair where one joint venture controls a vast majority of the capacity. For example, how much of the US to Switzerland market is controlled by the Star Alliance transatlantic joint venture (United, SWISS, etc.)? How much of the US to New Zealand market is controlled by the United and Air New Zealand joint venture? It’s not ideal, no doubt, but it does happen.
Here’s the biggest issue, though. I’m not sure exactly what concessions the DOT should’ve asked for. The United States and South Korea have an Open Skies agreement, so there’s nothing preventing American or United (or other airlines) from adding more flights between the two countries. The way I view it:
- If fares between the US and South Korea skyrocket, we’ll see more airlines add flights between the two countries, since obviously the economics would make sense
- American and United both have an interline agreement with Korean Air, so it’s not like passengers can’t book connecting itineraries involving travel on Korean Air and Delta’s competitors
- Passengers always have the option of connecting when traveling between the United States and South Korea, for lower fares; it’s not like nonstop flights between the United States and South Korea are the only way to travel between the countries
- Ultimately a large part of the need for this strong joint venture is Delta’s weakness across the Pacific otherwise, especially in comparison to United; it’s not even about the US to South Korea market, but rather about the larger US to Asia market, as Delta wants to route everyone through Seoul Incheon
No matter how much Delta expands this, I just don’t find this to be a terribly compelling joint venture for travel beyond just the United States and South Korea. Most people don’t want to fly US airlines to Asia. Korean Air is a second-rate Asian carrier, and Seoul Incheon is just an okay hub.
In terms of the overall competitive landscape between the US and Asia, I’d still much rather be a United flyer, and be able to travel nonstop to so many more destinations.
Now, of course we can start a separate debate about whether joint ventures should be allowed at all. Do they sometimes get too powerful? Absolutely. But I also think they’ve done a lot for global connectivity. It’s also important to acknowledge that the airline industry is low margin and volatile, and ultimately mergers and joint ventures have contributed to the preservation of a lot of capacity, as we would’ve likely otherwise seen a lot more liquidation.
Bottom line
With Korean Air having acquired Asiana, the Delta and Korean Air joint venture has an even more dominant market position between the United States and South Korea. However, I’m not sure there’s anything that could’ve practically been done to prevent that. Delta otherwise isn’t very strong across the Pacific, so this allows Delta to continue to build a strategy there, routing everything through Seoul Incheon.
It’ll be interesting to see how this all evolves, and how the “new” Korean Air allocates capacity, especially with former Asiana jets.
What do you make of the Delta & Korean Air joint venture, and its power?
Outside of ICN, DL/KE has no competitive advantage to any of the premium business destinations in Asia - TPE, HKG, SIN, TYO, PVG, PEK. Any US -> Asia pax are snapped up by UA via SFO, while any Asia -> US pax are snapped up by the local asian airline (CX, NH, JL, BR, CI, JX, SQ - all of which are generally considered better than KE). What's left is a bunch of secondary and...
Outside of ICN, DL/KE has no competitive advantage to any of the premium business destinations in Asia - TPE, HKG, SIN, TYO, PVG, PEK. Any US -> Asia pax are snapped up by UA via SFO, while any Asia -> US pax are snapped up by the local asian airline (CX, NH, JL, BR, CI, JX, SQ - all of which are generally considered better than KE). What's left is a bunch of secondary and tertiary cities in China and southeast asia, and the traffic there being low yield VFR or tourism.
So Tim, you can brag as much as you want about the expansion opps at ICN that arent available or attractive at NRT, but none of that really matters when it comes to the routes and pax that makes the most money. This is also not to mention DL/KE competing with the Taiwanese airlines and CX for that same traffic. I wouldn't be surprised if DL/KE eventually grows to have the lowest yield / margin with the highest traffic volume tpac - a consolation prize compared to UA's strength in Asia.
Btw - you love to bring up how UA's tpac margins are worse than DL's, but it's pretty obvious that this is because of their overexposure to the south pacific, and not weakness in their US-Asia routes. I would bet serious money that if you isolated just US-Asia, UA outperforms DL on profitability.
Feel free to compare UA's size in the S. Pacific to its N. Pacific routes for the summer.
UA is pretty small to the S. Pacific compared to its size over the N. Pacific.
And if the S. Pacific loses that much money, why do they fly it?
and if UA makes all of its money to HKG, SIN, TPE MNL and China, then it is because they subsidize NRT.
It is because...
Feel free to compare UA's size in the S. Pacific to its N. Pacific routes for the summer.
UA is pretty small to the S. Pacific compared to its size over the N. Pacific.
And if the S. Pacific loses that much money, why do they fly it?
and if UA makes all of its money to HKG, SIN, TPE MNL and China, then it is because they subsidize NRT.
It is because AA has an even higher percentage of its network at NRT than UA does that they lose money and will until they close the station and do not operate a JV with JL involving NRT.
and all of DL's TPAC flights except for HNL-HND operate on new generation aircraft while UA use the 777-200ER and -300ER on many flights with the added cost of tens of thousands of dollars in extra cost per flight segment.
DL's network and aircraft give it higher profitability including by not flying to airports that AA and UA used to get Open Skies and JVs at the expense of the local market.
This will be great for passengers when KA and DL finally get their new long haul models. It’s been took long.
Radio Moscow spokesman Tim Dunn loses her claim to respect when she refers to someone else flapping their gums.
Delta has no excuse for being weak across the Pacific. Northwest used to be the big guy across the Pacific. Delta was stupid to retire the great name and livery, in place of a silly name with no recognition over the Pacific.
JV should be mostly limited to frequent flyer cooperation, lounges, but not fares.
Korean is not first rate. Neither is Delta.
If I were to advise airlines, the big 3 airline names would be United, TWa, and Pan Am (Northwest, if Delta could not get naming rights for Pan Am). Delta did have rights to use Pan Am for 1 year for transatlantic flights
Not that I agree with Tim Dunn but this comment is just ridiculously exaggerated.
Here are the top airline brands by brand value and brand awareness:
Brand value
As of March 2024, the top five airline brands by brand value are:
Delta Air Lines: The most valuable airline brand in the world, with a brand value of $10.8 billion
American Airlines: With a brand value of $10.2 billion
United Airlines: With a brand value of $8.7 billion
Emirates: The only non-US brand in...
Here are the top airline brands by brand value and brand awareness:
Brand value
As of March 2024, the top five airline brands by brand value are:
Delta Air Lines: The most valuable airline brand in the world, with a brand value of $10.8 billion
American Airlines: With a brand value of $10.2 billion
United Airlines: With a brand value of $8.7 billion
Emirates: The only non-US brand in the top five, with a brand value of $6.6 billion
Southwest Airlines: With a brand value of $5.4 billion
nowhere in that list is PA, TW, or NW.
and AA has greater global brand equity than UA.
Brand value is a fluff, not a fact Tim.
Some company just doing some fluff math and come up with a number.
DL brand value according to Derek maybe a few million dollars.
DL brand value according to Tim Dunn is probably $30 decillon or $30,000,000,000,000,000,000,000,000,000,000,000,000.
Fluffy Tim likes to fluff.
It is absolutely no surprise that you and others don’t like the fact that Delta is in the industry leadership position.
It is precisely because so many can’t stand seeing Delta at the top and their company is not that there is a whole airline chat industry of which Ben gladly takes a piece
Enilria routinely flaps his gums about things he doesn’t understand or doesn’t have complete data on.
Does he think the DOT didn’t look at DL and KE’s position in the S. Korea – US market as a part of the JV which has been in place for a number of years?
Does he not know that the US and S. Korea were one of the earliest US-Asia Open Skies partners?
Does he...
Enilria routinely flaps his gums about things he doesn’t understand or doesn’t have complete data on.
Does he think the DOT didn’t look at DL and KE’s position in the S. Korea – US market as a part of the JV which has been in place for a number of years?
Does he not know that the US and S. Korea were one of the earliest US-Asia Open Skies partners?
Does he not realize that the KE/OZ merger deal has been in process for years?
Doesn’t really matter what he thinks. The DOJ not only approved the KE/OZ merger but added no restrictions on the DL-KE JV.
The Biden DOJ just struck down Nippon Steel’s attempted acquisition of US Steel. They can and will act if there is a threat to consumers.
Ben is right on this aspect of the deal. The issue comes down to whether there is pricing abuse of the local market. DL and KL control by far the majority of the US-Netherlands market as does AF/DL of France, UA/LH Group of every one of the LH Group home countries. If the DOJ sees abuse of the local market in a JV, they don’t renew the JV. Not a single US-foreign carrier JV has been ended because of pricing abuse of the local market.
Not only has Air Premia added almost as many flights as OZ operates but AS is adding ICN. There is strong competition in the US-S. Korea local market.
The real point of the DL-KE JV is to create an unmatched hub in Asia. Tokyo flight growth is capped because of Japan’s two airport policy which strictly limits HND capacity while NRT yields are so much lower than HND, providing no incentive for legacy carriers to grow – and they have not.
The US does not have Open Skies with China or Hong Kong. No US carrier has a JV with a Taiwanese carrier even though the US has Open Skies with Taiwan.
ICN is the largest TPAC hub and has enormous capacity to grow. AA and UA and every Asian airline would love to have what DL has with KE and now OZ. By freeing up the duplicate flights and routes which KE and OZ, KE will be able to grow ICN even further.
Of course, enilria is going to squeal because DL has outstrategized its competitors again.
And DL’s TPAC revenue is half the size of UA’s. and yet DL continues to make more profits per ASM than UA across the Pacific. UA has said aggressive growth across the Pacific is over. Only if Russia airspace restrictions end will UA restart the Eastern US to E. Asia routes it has cancelled – if it can get the aircraft.
DL received more new widebody aircraft in 2024 than all of the other US airlines combined. AA and UA are scheduled to each receive at least a half dozen 787s in 2025 while DL should still see another dozen.
Ben is right that DL is the big winner in the KE/OZ merger. Unlike many foreign mergers, S. Korea has made sure there is room for new competitors and they continue to add flights.
This is a good merger and DL/KE will operate the largest and most expansive JV across the Pacific regardless of what "childish, uneducated and frankly extremely dumb" comments come from someone's computer.
Note that the DoT, who are pro-consumer by law, has a MONTHS long approval process for joint ventures, and that the airline's themselves write a healthily long explanation to the DoT on why they should have one.
If you ever have the spare time, I highly recommend going through one of them.
Ultimately, just spending 5 seconds looking at market share is a basic, childish, uneducated, and frankly extremely dumb way to "analyse" something. Rant over.
touché
A reminder to everyone that South Korea has marginal to borderline trash yields.
It really says a lot that such a large market doesn't already have more flights.
feel free to provide the average fares for US to Tokyo (both airports) and S. Korea.
In fact, ICN to US commands higher average fares than NRT now.
There are many, many possible sources to back up that claim.
That aside, United Airlines said that at an employee townhall back when OZ was still a partner.
feel free, then, to tell us why DL got 85% of the TPAC profits that UA got across the Pacific even though UA flew 2X as much capacity in the most recent quarter.
My friend, NRT is the hub that has been reduced to low fares but AA and UA can't walk away from it because it is the basis of their TPAC JVs. and it is the only JV hub that has expansion capability,...
feel free, then, to tell us why DL got 85% of the TPAC profits that UA got across the Pacific even though UA flew 2X as much capacity in the most recent quarter.
My friend, NRT is the hub that has been reduced to low fares but AA and UA can't walk away from it because it is the basis of their TPAC JVs. and it is the only JV hub that has expansion capability, even if the local NRT market continues to be siphoned off by HND flights.
When the Japanese said that DL could not move its NRT hub to HND, DL outsmarted AA and UA by walking away from NRT, partnering with KE which already had a larger TPAC hub than JL or NH had at NRT, and then DL sat quietly while the Korean government orchestrated the merger of KE and OZ.
Isn't NRT supposed to be the 'low-cost' airport of Tokyo? Wouldn't it be fairer to compare against HND instead?
Yes, Timmy Deez is of course obfuscating the issue as usual
bluboi
no, because HND is not Open Skies and is not even designed to be a connecting airport for US-TPAC flights. NRT is designed to be a connecting airport and it is that- at the expense of the local market which uses HND.
S. Korea segregated longhaul international flights to ICN and left GMP with domestic and Japanese flights.
Japan made its choice and the JV partners pay the price not just in their...
bluboi
no, because HND is not Open Skies and is not even designed to be a connecting airport for US-TPAC flights. NRT is designed to be a connecting airport and it is that- at the expense of the local market which uses HND.
S. Korea segregated longhaul international flights to ICN and left GMP with domestic and Japanese flights.
Japan made its choice and the JV partners pay the price not just in their size across the Pacific under the JV but also in access to the local Tokyo market.
DL (and KE because Japan is part of the DL-KE JV) hub at an airport with a viable and valuable local market, unlike NRT.
Yes this is too powerful. I am going to Seoul in 2 weeks. If my American flight is delayed on mechanical or canceled I will make them reroute me on KE. D1 as last resort.
This article should've put a huge smile on the faces of Proximanova & ORD.
I agree with the thrust of the post, '81% of direct flights between the USA and South Korea doesn't mean anything when a good proportion of the passengers will have further connections on either/both ends of the long flights.
However, are you seriously suggesting that KE is a 'second-rate' carrier on the basis of having taken one recent flight with them and not being enamoured with the service?
Do you think that there's literally...
I agree with the thrust of the post, '81% of direct flights between the USA and South Korea doesn't mean anything when a good proportion of the passengers will have further connections on either/both ends of the long flights.
However, are you seriously suggesting that KE is a 'second-rate' carrier on the basis of having taken one recent flight with them and not being enamoured with the service?
Do you think that there's literally anyone who would prioritise systemic things like hard product, operational reliability, or IROPS handling over the 'warmth' of the service which is dependent on one individual at a time (particularly when that person has to deliver it in a foreign language)?
I've only flown a handful of short flights with KE in recent years, so I don't have a lot of experience with their products, but they got me there on time, didn't lose my luggage, offered me a personalised greeting as an E+ member, were very proactive about keeping me updated on a slight delay the one time there was one, had very orderly boarding processes in place, and generally oozed competence and professionalism throughout.
Using the same logic as you, I could say that SQ is a worse airline than KE, as their lounge at SIN couldn't find a way to speak with the gate of my flight (on another *A member) about a delay. Of course, I don't think it works like that!
@ Throwawayname -- I don't think Korean Air is to the same level as Asia's top carriers, and that's not because my impression of the "warmth" of a single employee, or based on a single flight. Korean Air's hub lounges aren't good at all, and the carrier's premium soft product just doesn't compare to other top carriers in the region, in my opinion. That's just my opinion, and I'm not saying others should feel the...
@ Throwawayname -- I don't think Korean Air is to the same level as Asia's top carriers, and that's not because my impression of the "warmth" of a single employee, or based on a single flight. Korean Air's hub lounges aren't good at all, and the carrier's premium soft product just doesn't compare to other top carriers in the region, in my opinion. That's just my opinion, and I'm not saying others should feel the same way I do. I've taken dozens of flights on the airlines over the years, and have always been left with a similar impression.
I think more appropriate tier would be the 1.5th. KAL is too good to be the second tier, and not enough to be the top tier.
I could agree that their premium class products aren't the greatest, but they actually are one of the greatest in the region when in comes to the economy class. And the focus of this JV should be on the economy class as well... in my opinion.
@ NS -- Totally fair, and when I said second tier, my intent was simply to say that it's not among the top carriers in the region. Yes, of course it's still a solid airline, it's just not quite to the same level as some others. You're also right that Korean Air's economy product is excellent.
That's fair enough, and I fully agree that their lounges aren't impressive- in fact, the domestic one at GMP must have the most spartan catering of any lounge I've ever visited (they only have still water, coffee machine, and packaged biscuits and crackers, I don't think they've even got soft drink cans). But I don't see a somewhat underwhelming soft product in premium classes as being sufficient to relegate an airline that does pretty much...
That's fair enough, and I fully agree that their lounges aren't impressive- in fact, the domestic one at GMP must have the most spartan catering of any lounge I've ever visited (they only have still water, coffee machine, and packaged biscuits and crackers, I don't think they've even got soft drink cans). But I don't see a somewhat underwhelming soft product in premium classes as being sufficient to relegate an airline that does pretty much everything else right to 'second-rate'.
“Second tier” doesn’t mean “second rate”. The items like poor lounges do move it down below the very best Asian carriers.
But the post does say 'second-rate'
For Asian carriers.
KE economy, definitely among the top.
KR premium, definitely second tier.
Like you, Ben, while country to country joint ventures may be anti-competitive, I think most of them exist in larger regional markets where there is ample competition. So the country to country near-monopolies are less of an issue. Do Switzerland to the US, Aotearoa to the US or indeed the Korea market matter all that much? Or does the Qantas-American JV make any difference? I can find fares to the US on all three alliances...
Like you, Ben, while country to country joint ventures may be anti-competitive, I think most of them exist in larger regional markets where there is ample competition. So the country to country near-monopolies are less of an issue. Do Switzerland to the US, Aotearoa to the US or indeed the Korea market matter all that much? Or does the Qantas-American JV make any difference? I can find fares to the US on all three alliances from Australia, some non-stop, some with connections. Qantas flies from Auckland to JFK.
Much of the US premium market to Korea will be people who are tied to one of the Legacy 3 US carriers' FF programme so they will tend to choose flights with those airlines, even if there are connections en route. Destinations beyond Incheon, all bets are off. JAL, Cathay, United, ANA, EVA, Singapore, or Delta? Even if your Flying is Blue, there is also China Airlines.
Tim Dunn, will be absolutely delighted …. one thinks?