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On February 21, 2022, the Korea Fair Trade Commission (the “KFTC”) granted a conditional approval for Korean Air’s acquisition of 63.88% of the outstanding shares of Asiana Airlines. In its review of the proposed merger between the two largest Korean airlines, the KFTC identified a number of antitrust concerns including potential entry barriers on international and Korean routes operated by both airlines. To address these concerns, the KFTC imposed both structural and behavioral remedies - a first for the Korean antitrust enforcer in a merger between major airlines. Among the remedies are: (i) transfer of airport slots and carriage rights\; (ii) restrictions on increasing fares\; and (iii) restrictions on reducing supply.

1. Summary of the KFTC’s Assessment

A. Relevant Market
The KFTC defined the relevant market as each route serviced by both airlines from a point of origin to that of destination. Based on this market definition, the KFTC found overlaps between the parties on 65 international routes and 22 Korean routes.

B. Competitive Assessment
The KFTC identified substantial antitrust concerns regarding 26 international routes (6 EU, 5 U.S., 5 China, 6 Southeast Asia, 1 Japan, and 3 others including the Oceania route) and 14 Korean routes. On the other hand, the KFTC determined that the transaction would raise no antitrust concern regarding international and Korean cargo routes or aircraft maintenance services.

2. Summary of the Remedies Imposed

A. Structural Remedies
i. Transfer of Airport Slots
The parties are required to transfer their Korean airport slots for the 26 international service routes and 8 Korean routes in case of any new entry or service expansion on those routes

ii. Transfer of Carriage Rights
The parties are also required to transfer their carriage rights for 11 international routes in case of any new entry or service expansion on those routes

iii. Other Remedies (e.g., Transfer of Non-Korean Airport Slots)
The parties are prohibited from unreasonably rejecting new market entrants’ requests for (i) transfer or sale of non-Korean airport slots, (ii) execution of fare agreements, (iii) use of Korean airport facilities, and (iv) cooperation in their efforts to obtain airspace passes.

B. Behavioral Remedies
The KFTC concluded that a timely new market entry would be unlikely for all the affected routes, considering the uncertainties facing the industry because of the pandemic and the ongoing merger reviews of the transaction in other jurisdictions. Accordingly, the KFTC imposed behavioral remedies including the following: (i) restrictions on increasing fares\; (ii) restrictions on reducing supply (i.e., number of seats)\; (iii) restrictions on lowering the quality of service (e.g., space between seats and number of free luggage pieces)\; (iv) restrictions on changing the terms and conditions of the flight mileage program in a manner disadvantageous to consumers. The parties are required to comply with the behavioral remedies until the structural remedies are fully implemented.

Yulchon LLC, Legal Update (24. Feb. 2022)

https://www.yulchon.com/en/resources/publications/legal-update-view/31156/page.do