Japan Airlines has just acquired a stake in Korean Air’s parent company, Hanjin KAL, and it’s expected to lead to an expanded strategic partnership.
This is rather unusual on the surface, since Korean Air is in SkyTeam, and has a joint venture with Delta, while Japan Airlines is in oneworld, and has a joint venture with American. What’s really going on here, and is there an ulterior motive?!
Japan Airlines reveals surprise investment in Korean Air
It’s an interesting time for aviation in South Korea, given that Korean Air and Asiana have merged, and the two airlines will shortly be operating under one brand. Delta has already invested in Korean Air’s parent company, which seems logical enough, given the close commercial cooperation between the airlines.
But now we can add another airline to the list, as Japan Airlines has also purchased an undisclosed stake in the South Korean flag carrier. The view is that Japan Airlines is coming in as a white knight for Hanjin KAL Chairman Cho Won-tae, whose control is under threat from the company’s second largest shareholder, Hoban Group.
More specifically, the company’s second largest shareholder is currently within 1% of having the same size stake as the largest shareholder, and the Korean Development Bank could soon sell its 10%+ stake. So the concern is that a big fight could be triggered between the two largest shareholders, though both Delta and Japan Airlines are expected to side with the Chairman.
The thing that many people forget is that even though Korean Air and Japan Airlines are rivals, they have cooperated for decades, specifically in the form of a codeshare agreement between South Korea and Japan. That’s a high demand market, but there’s also value to coordination there, given limited slots at Tokyo Haneda (HND), plus the overall traffic flow into Tokyo Narita (NRT).
The plan is for the two airlines to work even more closely together, and enter a strategic partnership, which would be a bilateral alliance that goes beyond their participation in their respective global alliances. This will initially include closer cooperation in their core passenger and cargo businesses. The companies will also form a task force to pursue new business opportunities, with options for cooperation with maintenance, sustainable aviation fuel, urban air mobility, and more.
What should we make of this surprise airline investment?
I must say, on the surface this deal strikes me as a bit unusual. This is Japan Airlines’ first investment in a foreign airline, and it’s not like you actually need to invest in an airline in order to cooperate with them. Japanese business culture is also rather transparent and “by the book,” so this isn’t like United CEO Scott Kirby trying to play some sort of strategic game to trick regulators (or… whatever he’s doing, who knows).
Presumably this is a fairly small investment (in terms of percentage ownership), so it’s not like Japan Airlines will get much say in Korean Air’s day-to-day operations. So is Japan Airlines investing in Korean Air because it thinks it’ll get a great direct return on that investment, or is this a situation of helping out Korean Air’s Chairman, and hoping this results in equally favorable treatment in return?
We know that the partnership between Japan and South Korea will be expanded, but what could we realistically see beyond that? I don’t expect we’re going to see anything too radical here:
- There’s no way that Korean Air and Japan Airlines would be allowed to join the same transpacific joint venture, so I don’t think this is some grand strategy to get Japan Airlines to leave oneworld and join Korean Air and Delta’s business instead
- That being said, I can see how this bilateral agreement could give Japan Airlines an edge over competitor All Nippon Airways in terms of regional service and passenger flows
- Belonging to an alliance or joint venture isn’t the same as full-on airline monogamy, so there’s no reason we couldn’t see widespread non-joint venture reciprocity between the airlines when it comes to earning and redeeming points, earning status rewards, etc.
- I think the interesting question will be if Delta gets in on this in any way, by association; after all, Delta is soon returning to Tokyo Narita, so could we see something beyond an interline agreement between Delta and Japan Airlines?
Anyway, I’m not expecting anything here that will rock the boat too much, and I suspect this will mostly impact travel between Japan and South Korea. However, who really knows, the airline industry does sometimes throw us curveballs…
Bottom line
Japan Airlines has invested in Korean Air, which is the first foreign airline that the company has taken a stake in. On the surface, it’s odd to see the Japanese oneworld carrier invest in the South Korean SkyTeam carrier, given how they compete. However, the airlines do also cooperate for flights between the two countries. That doesn’t necessarily explain why one needs to take a stake in the other, though.
The airlines claim they’re now working on finding more ways to cooperate, so let’s see how this all evolves…
What do you make of this Japan Airlines and Korean Air situation?
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