Virgin Atlantic agrees to launch Seoul flights to allow Korean / Asiana merger to proceed

Virgin Atlantic has given binding agreements to the UK Competition & Markets Authority to launch flights to Seoul, as part of a deal to allow UK Government approval of the Korean Air and Asiana merger.

Subject to agreement by other national competition regulators, the merger can now proceed. 11 regulators have already approved the deal but some approvals are still pending. Progress on the deal has been slow, with the merger originally announced back in November 2020.

Flights are expected to launch during the Summer 2024 flying season which starts in late March 2024.

With British Airways not having flown to Seoul for a number of years, the prospect of the only two airlines offering direct services merging caused concern in the UK.

As well as fears that the 150,000 passengers who flew between London and Seoul annually pre-covid could face higher fares for direct flights, there was also concern that cargo pricing could increase and raise costs for British businesses who rely on Korean imports.

Korean Air has now entered into a series of undertakings – PDF here – to ease concerns.

What has Korean Air agreed?

Under the terms of the undertakings, Korean Air has agreed with Virgin Atlantic that it will operate flights to Seoul to compete with the merged Korean / Asiana.

Virgin Atlantic told us in a statement:

“Air passengers deserve a choice when flying. We believe that a fair and competitive market is essential for the aviation industry to evolve and thrive. We welcome the CMA’s decision regarding Virgin Atlantic’s role as the remedy taker in the Korean Air and Asiana merger, which will facilitate our entry into Seoul. We are excited to be appointed as the remedy taker to start flying to Seoul and will confirm our next steps in relation to a route start-up in due course.”

Here are the terms, as we understand it from the official documentation (E&OE):

• Korean Air will provide Virgin Atlantic with slots at London Heathrow and Seoul Incheon to operate up to seven flights per week

• The service must start within 12 months of the closure of the merger, or during the Summer 2024 flying season, whichever is later

• Virgin Atlantic will be allowed to codeshare with Korean Air on the route

• Virgin Atlantic will enter into a codeshare with Korean Air on its existing Seoul flights as soon as is practically possible, irrespective of whether other competition approvals have been received

• Korean Air must allow Virgin Atlantic to codeshare on connecting Korean Air flights from Seoul, with a similar cargo agreement also being put in place. Again, this arrangement must be put in place ASAP and not when the merger finally completes.

• Korean Air must allow Virgin Atlantic passengers to use its lounge in Seoul (this would happen anyway due to SkyTeam rules, but would be more important if Virgin Atlantic was replaced by British Airways)

• Virgin Atlantic has agreed to operate the route for at least three years, albeit this is subject to ‘commercial viability’.

• After three years, Virgin Atlantic would be allowed to keep the Heathrow (and indeed Incheon) slots it obtained from Korean Air and use them for other routes, although it cannot sell or lease them to another airline

In normal circumstances this could be an attractive deal for Virgin Atlantic. However, with the requirement to take detours to avoid flying over Russia, I am not sure that the economics are attractive at the moment given that this has historically been a low yielding route.

That said, the lure of getting hold of a Heathrow slot pair which is well timed for flights to Asia may be enough to convince Virgin Atlantic to stick it out for the required three years. If Virgin Atlantic then chose to use the slots to fly elsewhere, it could be a win for both sides with Korean Air gaining a monopoly.

If Virgin Atlantic withdraws from the agreement for any reason, Korean Air is obliged to find another airline to fly between the two cities. As British Airways – the only obvious alternative – would provide stiffer non-SkyTeam competition, I think it is safe to assume that Korean Air will do what is necessary – including financial assistance – to ensure that the Virgin Atlantic launch goes ahead.

You can download the full CMA adjudication as a PDF here.

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