The Business Times

Delta, Korean Air in joint venture talks to deepen alliance

Published Mon, Feb 27, 2017 · 10:07 AM
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[SEOUL] Korean Air Lines Co is in talks with Delta Air Lines Inc. for a joint venture in a move that would give the second-largest US carrier a bigger foothold in Asia where rising incomes are fueling a boom in air travel.

Details of the partnership would be disclosed later, the Asian airline's President Walter Cho told reporters at a briefing in Seoul's Incheon Airport Monday, declining to elaborate.

It would be premature for Delta to comment on any future joint venture partnership, the carrier's corporate communications department in Japan said in an e-mailed response to questions.

Delta, which has said it will rely on tie-ups in Asia to improve connectivity to the region's largest economies, is extending an existing pact with Korean Air beyond code-sharing.

While a joint venture will provide the Atlanta-based carrier a hub in Seoul and help it compete with other US rivals, its partner could get greater access in North America as South Korea prepares to host the 2018 Winter Olympics.

"A venture would give Delta greater access to Asia, where the travel market is growing rapidly," Um Kyung A, an analyst at Shinyoung Securities Co. in Seoul, said by phone.

"For Korean Air, getting more reliable connectivity on services with Delta will definitely help in attracting passengers."

SkyTeam Group Delta and Korean Air in September agreed to expand their code-sharing partnership by increasing destinations that can be shared among their passengers, with a combined 142 locations in the Americas and 33 in Asia. The carriers are two of the four founding members of the SkyTeam alliance established in 2000.

In an aviation joint venture, airlines typically share revenue and costs on a given route, no matter who is flying, according to the International Air Transport Association.

Korean Air isn't the only Asian carrier to tie up with US airlines. ANA Holdings Inc. has a joint venture with United Continental Holdings Inc and Japan Airlines Co has one with American Airlines Group Inc.

A joint venture between Delta and Korean Air could have about 14 per cent of the trans-Pacific market - slightly behind ANA-United's 15 per cent and ahead of Japan Airlines-American's 10 per cent, Capa Centre for Aviation said in a Jan 23 report discussing the possibility of a Delta-Korean Air tie up.

This gives Delta-Korean Air a "formidable position" of being the second-biggest entity, Capa said.

Shares of Korean Air fell 1.2 per cent to close at 28,450 won in Seoul, giving the carrier a market value of about US$2 billion. Delta was little changed at US$50.46 on Feb 24, with a market capitalisation of about US$37 billion.

Delta, which counts Warren Buffett's Berkshire Hathaway Inc as its top investor, is positioning itself for expansion in Asia. China is set to overtake the US to become the world's largest aviation market by passengers by 2024, according to Iata.

In 2015, the US carrier bought a 3.6 per cent stake in state-owned China Eastern Airlines Corp for US$450 million and later extended the cooperation to cover code-sharing, revenue management, scheduling, sales and frequent-flier programs.

Incheon airport, which serves Seoul, is expected to start operating its second terminal as early as end-2017 to help increase its annual capacity to 62 million passengers from the current 44 million. The airfield has three runways. Korean Air is expected to operate from the new facility.


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