Korean Air enjoys revenue and corporate sales growth from Delta Air Lines joint venture

Korean Air’s joint venture with Delta Air Lines has already driven a spike in revenues, transit traffic and corporate sales, giving South Korea’s flag carrier a reason to be bullish on its outlook despite challenging market conditions.


Highlights:

  • Korean Air is bullish on its 2019 outlook as its joint venture with Delta Air Lines is generating revenue, load factor and traffic growth;
  • Korean’s new service to Boston, which in April became its 12th US destination, is performing well;
  • Korean’s transit traffic beyond Seoul, particularly to Southeast Asia, has increased since the JV with Delta Air Lines was implemented and is expected to increase further as Delta pulls out of Tokyo Narita.

Korean implemented its JV with Delta in Apr-2018 following approval from South Korean and US regulatory approval authorities. Delta acquired a 4.3% stake in Korean in Jun-2019, further cementing their partnership.

The two airlines expanded their joint Korea-US network in Apr-2019 with Korean launching services to Boston and Delta launching services from Minneapolis to Seoul. Korean now serves 12 destinations in US (including Hawaii and Guam) while Delta has four services to Seoul Incheon.

Korean Air managing VP passenger network and sales Bo-Young Song told CAPA TV on the sidelines of the 2-Jun-2019 IATA AGM in Seoul that the new links from Incheon to Boston and Minneapolis are off “to a great start by having a high load factor. We expect both markets will continue to perform well.”

He added in the Boston market that Korean has benefited from Delta’s growing network at Boston Logan and Delta’s sales capacity in the wider New England region.

Mr Song said the JV has already contributed to revenue and load factor improvements, enabling Korean to offset an otherwise challenging market, including rising fuel prices and a weakening local market in South Korea. The airline is projecting a 7% increase in passenger numbers for 2019, driven partially by growth in the markets covered under the JV with Delta.

The impact of JV is not limited to the transpacific market as 37% of passengers flying on their US-Korea flights connect beyond Incheon. Korean expects the transit figure to increase further as Delta drops its hub at Tokyo Narita for an expanded operation at Haneda, where it recently was tentatively awarded five additional daily slot pairs (for Atlanta, Detroit, Honolulu, Portland and Seattle).

Delta (and predecessor Northwest Airlines) has used Narita as a transit hub for four decades but is expected to drop its remaining Narita-Asia routes, Manila and Singapore, as it moves its five remaining Narita-US routes to Haneda, where its expanding operation will focus entirely on US-Japan traffic.

Delta already links Haneda with Los Angeles and Minneapolis. In the heyday of the Narita hub, Delta had over 10 links to the US and over nearly 10 links to Asian destinations. Incheon is essentially becoming the new Narita for Delta to Koreans benefit.

SEE RELATED REPORT: Delta Air Lines prepares to say ‘sayonara’ to Narita

Korean is responding to increasing US-Southeast Asia traffic that has been generated by the JV to pursue expansion in Southeast Asia. It is launching services to Manila alternative airport Clark in late Oct-2019 and is planning capacity increases to several existing Southeast Asian destinations that are popular with US passengers.

Mr Song said Delta and Korean are now working to strengthen their JV in several commercial areas including pricing, revenue management, sales, operations and services. He expects “growing synergies” will contribute to further revenue increases and further enhance the JV’s position in the corporate market. Delta and Korean have already completed over 1,000 joint corporate contracts, leading to a 20% spike in corporate sales.

Korean also reports positive feedback from customers flying under the JV, including corporate customers. The transit experience at Incheon improved following the opening of Terminal 2 last year and Korean continues to work on further customer experience enhancements.

HEAR MORE… Korean Air managing VP passenger network and sales Bo-Young Song shares his views on the airline’s development in this exclusive CAPA TV interview recorded at the IATA AGM in Seoul, South Korea in early Jun-2019.

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