Korean Air Spearheading the Korean Airline Industry Consolidation

• Nearly four years have passed since Korean Air first proposed a merger with Asiana Airlines in November 2020. Despite repeated delays, it appears that this merger could finally occur.

• There is now a higher probability of Korean Air and Asiana Airlines receiving the final merger approval from the United States Department of Justice.

• Combined with attractive valuations, better balance sheet, and improved profitability from the merged entity, we believe that Korean Air shares could continue to outperform KOSPI in the next 12 months.

Photo by insung yoon on Unsplash

Conclusion First

After the final approval by the European Union regarding the merger between Korean Air and Asiana Airlines last week, the two companies are now waiting for the final approval from the Unites States Department of Justice (DOJ).

Nearly four years have passed since this merger was first proposed. Now, the probability of this merger getting completed has risen significantly. Korean Air and Asiana Airlines have met many of the difficult conditions including the sale of Asiana's cargo business and surrender of some of the valuable international routes to competitors.

The combined share of Korean Air and Asiana Air international passenger market declined from 51% in 2021 to 33% in 1Q-3Q 2024, which is a reflection of these two companies' giving up some of their valuable international routes.

All in all, given the higher probability of Korean Air and Asiana Airlines receiving the final merger approval from the US DOJ, combined with attractive valuations, better balance sheet, and improved profitability from the merged entity, we believe that Korean Air Lines (003490 KS) shares could continue to outperform KOSPI in the next 12 months.