Korean Air eyes $350 mn in cost savings from Asiana merger

Korean Air Lines Co. will retain its brand name after absorbing local rival Asiana Airlines Inc. in a span of around two years, with their merged entity expected to reduce operational costs by up to 400 billion won ($350 million) a year.

Last year, the flag carrier agreed to take over Asiana for 1.8 trillion won, a deal set to create the world's seventh-largest airline.

Upon approval from antitrust regulators in South Korea and nine other countries, Korean Air will complete the acquisition and run the latter as a separate unit for the following two years, Korean Air's Chief Executive Woo Kee-hong said on Mar. 31. Then both entities will be merged under the Korean Air brand.

"In terms of profitability, we will be able to improve our profits by streamlining overlapping routes, providing additional connecting routes and maximizing the synergy from our combination," Woo told an online news conference.

"In terms of cost savings, we will achieve the economies of scale by making efficient use of facilities, aircraft, staff, terminals and sales networks, while improving our financial structure. This will save us financial expenses such as interest costs." 

He said their merger will cut operational costs by 300 billion to 400 billion won ($265 million-$353 million) a year from the second year of their combination, once the airline industry returns to the pre-pandemic situation.

Their integration will require combinations of alliance programs formed with other countries' carriers, mileage services and IT and accounting systems, the CEO added.

For their budget carriers, Korean Air is considering combining the three low-cost carriers -- Jin Air Co., Air Busan Co. and Air Seoul Co. -- into one entity, under the control of either Korean Air, or its parent company Hanjin KAL Corp.

Their merger will make about 1,200 employees redundant, but Woo said the redundancy could be resolved through natural attrition, without layoffs.

In 2020, Korean Air posted 238.3 billion won in operating profit, a 17% year-on-year drop, despite a 40% tumble in revenue. Brisk cargo operations offset a drastic drop in passenger flights. In comparison, Asiana Airlines saw its operating loss reduced to 276.4 billion won, versus a 443.7 billion won loss in 2019.

Last month, Korean Air raised 3.32 trillion won from a new share sale in the the largest-ever rights offering by a domestic company. It will use 1.5 trillion won of the proceeds to fund its 1.8 trillion won acquisition of Asiana.

Write to Kyung-Min Kang at kkm1026@hankyung.com
Yeonhee Kim edited this article.