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Aero K and Air Seoul talks expected to fizzle
April 12th 2019
Air Seoul loss declined to US$1.4m in 2018. Read More »
Consolidation in Korea’s growing LCC sector is expected – but not yet. Press reports this week said Aero K was in discussions to buy Air Seoul for an unspecified amount. Aero K told the local media it would not confirm specific details.
Aero K is one of three start-ups that received a business license from Seoul last month. It still must acquire two more major licenses. Air Seoul is Asiana’s wholly-owned LCC and flies 19 routes with seven A321s.
Industry observers exercised caution, suggesting this was more of Aero K reviewing Air Seoul that the two having serious dialogue. Regulator MOLIT is said to prohibit changes to the business plan it approved of the three start-ups. This would preclude a takeover.
Aero K’s purported objectives are unclear. There is speculation Air Seoul could help Aero K receive regulatory certification more easily and faster. But this is largely formulaic concerning safety; the contentious regulatory process was the business license Aero K already received. Aero K taking over Air Seoul would make Aero K larger and potentially give it an advantage in traffic right allocations that Seoul decides based on factors including size, performance and merit.
Reports said Aero K would absorb Air Seoul’s fleet and network but move the operation to Cheongju, about half-way between Seoul and Busan. While Cheongju is said to be more efficient and have an open slot schedule, Air Seoul has a favourable position in its home of Seoul Incheon since it inherited slots and routes from Asiana.
Air Seoul has improved from an operating loss of 26 billion won (US$23m) in 2017 to a loss of 1.6b won ($1.4m) in 2018. Revenue in 2018 was 221.5b won ($194m). Asiana has mooted selling assets but has not specifically named Air Seoul. It has specified the possibility of selling shares in listed Air Busan, which Asiana owns 44% of.
Air Busan is expected to start flying out of Seoul. But this is not seen as Asiana preparing to replace Air Seoul. Instead, Air Busan is seeking traffic rights that Air Seoul is unlikely to receive because Air Seoul is young.
Aero K plans to operate 10 A320s within three years.
