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Alan Schult, Asia Pacific Director of Transportation at Bain & Company
Alan Schulte, President of Bain & Company
“The global aviation industry will experience an extreme ‘bardad pass’ over the next two to three years. Without an overall level of ‘economies of scale’, the Korean aviation industry is very likely to fall behind the competition. ”
“If you don’t have an economy of scale, you will lag behind the competition.
All successful aviation integration in the last 15 years
Korean Air and Asiana will also have great synergy “
Alan Schult, who oversees the Asia Pacific airline, logistics and transportation sectors at Bain & Company, a consulting firm, said. The JoongAng Ilbo gave an email interview with Schulte on the 29th of last month. Based in Bangkok, Thailand, he said: “There are positive signs such as the development of vaccines, but the aftermath of the new coronavirus infection (Corona 19) will last for quite some time.” said. The following is a question and an answer with Schulte.
- How do you see the integration of Korean Air and Asiana Airlines?
- “The integration of airlines has obvious advantages. The first is the efficient coordination of the flight schedule. It will increase the number of connecting flights between cities and the boarding times for customers to choose. Consider the merger of Air France and KLM (Netherlands). The two companies have cut flights on low-demand routes. Thanks to this, I was able to advance to a city where it was difficult to call. The second is cost reduction. As airlines grow, they can wield greater power in negotiations with aircraft or engine manufacturers. In the last 15 years, all airline consolidations have been successful. “
- Is there any synergy through integration?
- “Currently, 20% of the routes operated by Korean Air and Asiana Airlines are oversupplied. Imagine rearranging planes and flights on these routes and then adding new ports of call. Airlines increase sales and customers can enjoy convenient direct flights. Based on our analysis, airlines that achieved consolidation increased sales and achieved higher return on investment (ROI) than before. “
- Are there any concerns about price increases due to integration?
- “The aviation industry is one of the most competitive. When looking for domestic flights in Korea, there are many low-cost airlines. On international flights, almost all routes are operated by foreign airlines. In recent years, foreign airlines are aggressively increasing long-haul flights to Korea. There are exclusive Korean-Asiana Airlines routes, but only a few. Compared to other countries, Korea has a small population. It means a very unfavorable competitive situation ”.
- Are you saying that it is difficult for the Korean aviation industry to ensure global competitiveness?
- “Korea has long served as a hub connecting North America with China and Southeast Asia. Airfares in Korea are low and cargo volume is high. The procedure for imposing tariffs or immigration is not complicated either. This was advantageous for Korean airlines. But the competitive advantage is shrinking. This is because scale is the number one indicator of competitiveness in the global aviation industry. “
- How about China or Japan?
- “Airlines in China and Japan are gaining competitiveness with cost advantages due to economies of scale. Most of the major airlines in China and Japan are larger than Korean Air and Asiana Airlines. All Nippon Airways (ANA) has more aircraft than Korean and Asiana Airlines combined last year. “
- How long will the Corona 19 crash last?
- “Domestic flights are expected to recover by the end of 2021 and travel between Asian countries to recover in 2023. Long-haul travel to the United States and Europe will only be possible by 2024. However, we can expect a scenario where an effective vaccine will be launched and economic recovery will accelerate. This could accelerate the recovery in aviation demand from six to 18 months. As there are many uncertainties, the airline must think about the response strategy from a conservative perspective.
- How will the global aviation market change?
- “A strong airline will be stronger, and those that have been struggling will face greater challenges. The main trend in the global aviation industry for the past 20 years has been integration. In Asia, integration is slower than in the United States and Europe due to strict regulations. After all, it is a matter of time. After Corona 19, a wave of integration will come quickly in Asia. “
Reporter Kwak Jae-min [email protected]
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