Korean Air, Asiana hit with $9.7M antitrust fine

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Korean Air, Asiana hit with $9.7M antitrust fine

Korea’s antitrust agency has slapped an 11 billion won ($9.7 million) fine on the nation’s two largest airlines for disrupting the operations of newly sprouting low-budget air carriers.

According to the Fair Trade Commission, Korean Air and Asiana Airlines pressed local travel agencies not to sell the low-budget airline companies’ tickets, threatening that they would withhold peak-season seats otherwise.

Korean Air, the country’s largest airline, and No. 2 Asiana have more than an 80 percent share combined in the domestic flight market and more than 60 percent in international fights, dominating the nation’s 12.8 trillion won airline service market.

The Fair Trade Commission said it fined Korean Air 10.3 billion won and Asiana 640 million won for antitrust activities, though the fines may change when the agency confirms the amount of sales affected.

“For travel agencies, securing enough tickets for popular routes during the peak season can determine how many customers they can get,” the FTC said in a statement.

“As a result, low-cost carriers had great difficulty selling tickets for major international routes for Japan, Southeast Asia and Hawaii and domestic routes to Jeju.”

The competition in the local airline market, long dominated by Korean Air and Asiana Airlines, has intensified over the past few years as a growing number of small low-cost carriers began offering tickets at 70 to 80 percent of the price offered by the major carriers.

Jeju Air, a budget carrier established in 2005, saw its market share in domestic flights rise from 1.4 percent in 2006 to 5.6 percent in 2008, while its industry peer Hansung Airlines expanded its presence from 0.8 percent to 2.3 percent during the same period.

But Hansung, along with budget carrier Yeongnam Air, collapsed in 2008 on lagging sales, mounting debts and inability to get regulators’ approval to operate more lucrative international flights.

And the antitrust agency signaled yesterday that pressure from the two transportation giants may have played a part in the smaller airlines’ struggles.

“The inability to sell airline tickets through travel agencies caused great difficulty in [the budget carriers’s] operations and made it hard for them to settle into the market,” said the statement from the FTC.

“The airline transportation industry requires massive investment at the initial stage to secure aircraft and other infrastructure. If they fail to safely settle in the market, new companies are likely to collapse because of the massive initial spending.”

Korean Air and Asiana said they would wait for official notification from the antitrust agency, which will be sent to the carriers in the next 40 to 60 days, before making a comment.

“Since we haven’t been officially notified of any fine, it’s hard for us to state our position,” said an official of Korean Air who asked for anonymity.

Meanwhile, Jeju Air, one of the three low-cost carriers that filed complaints with the FTC, expressed relief. One of its representatives said it hopes for a “more transparent airline industry through free and fair competition.”

By Jung Ha-won, Lee Eun-joo [hawon@joongang.co.kr]
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