Fewer passengers, higher exchange rates and oil prices, yet 'seat maintenance' persists… Airline industry: "Market changes must be considered"

Critics argue that the Fair Trade Commission's decision to require Korean Air to strictly adhere to the "obligation to maintain 90% of supply seats" on routes to Guam, following its earlier mandate for Middle East routes, fails to adequately consider market changes. Analysts note that this corrective measure, accepted in order to facilitate the merger with Asiana Airlines, continues to hinder operations and is becoming a burden on the launch of "Integrated Korean Air."

In December 2024, when approving the business combination between Korean Air and Asiana Airlines, the Korea Fair Trade Commission prohibited reducing the number of supply seats by more than 10% (i.e., keeping them at or above 90%) compared to 2019 levels on 40 routes where competition restrictions were a concern. This figure was derived based on the fact that, as of that time (the first half of 2024), various indicators such as total supply seats and passenger numbers in the aviation market had recovered to more than 90% of pre-pandemic (pre-COVID-19) 2019 levels. Korean Air, which urgently needed approval for its acquisition of Asiana Airlines, accepted these corrective measures without objection, but the application of a uniform standard that did not consider route-specific characteristics has ultimately backfired.

Considering the sharp decline in passenger demand on the Guam route, Korean Air requested the Korea Fair Trade Commission to lower the seat maintenance obligation threshold from 90% to 70%. However, the Korea Fair Trade Commission rejected this request, citing that the decline in popularity of the Guam route had been ongoing even before the corrective measures were finalized (December 2024).

In fact, Guam's popularity as a travel destination has been steadily declining due to aging tourism and accommodation facilities and the rise of alternative resorts in Southeast Asia. However, another major reason for the decrease in passengers to Guam is the "collapse of cost-effectiveness" driven by high exchange rates. Given that the won-dollar exchange rate has been on a high-altitude march recently, hovering around 1,500 won in the first half of this year, the Korea Fair Trade Commission's recent decision is evaluated as somewhat regrettable.

There are also indications that the Korea Fair Trade Commission needs to operate its standards more flexibly. Previously, considering the surge in oil prices and exchange rates due to the Middle East war and the contraction of air passenger demand, Korean Air requested an exemption or relaxation of the seat maintenance obligation for all routes subject to the corrective order. However, the Korea Fair Trade Commission dismissed this, determining that "there were no significant or unavoidable changes in circumstances requiring modification of the corrective order." Given that Korean Air has been maintaining an "emergency management system" since April in response to rising costs due to a sharp increase in fuel expenses, it appears that its assessment of the deteriorating business environment differs significantly from that of the Korea Fair Trade Commission.

As a result of this decision by the Korea Fair Trade Commission, Korean Air is likely to have to absorb losses for some time on routes such as Guam. In fact, last November 7, Korean Air flight KE2260, which departed from Guam and arrived in Busan, made headlines for carrying only three passengers. The airline industry expressed concern that situations where maintaining 90% of supply seats may become difficult could arise on other major routes in the future, but given the Korea Fair Trade Commission's firm stance, they worried that it may be difficult to even request relaxation going forward.

Korean Air stated, "We plan to review response measures after receiving the Korea Fair Trade Commission's review report," adding, "The company is diligently fulfilling its corrective measure obligations and plans to continue making efforts in the future."