[Column] We Do Not Know the Regular Price of Airline Tickets

Entering the Mega Carrier Era... Increased Interest in Airfare Prices
"Strict Surveillance, Fierce Competition"

The European Commission (EC) has given final approval for the corporate merger of Korean Air and Asiana Airlines. After a lengthy process spanning four years since the initial merger announcement in November 2020, it has finally come to an end. Korean Air has become the only large full-service carrier (FSC) in Korea and a ‘mega carrier’ ranked among the top 10 largest airlines worldwide.

Although it is the only large airline in Korea, it is said not to be a monopoly. As of last month, the combined passenger share of Korean Air, Asiana Airlines, and their affiliated low-cost carriers (LCCs) at Incheon Airport was 50.9%. Based on the numbers alone, it is difficult to say they have completely dominated the market.

A closer look is necessary. The customer bases for low-cost carriers and full-service carriers differ. People willingly pay more to enjoy more spacious seating and a wider range of services, which is why they choose full-service carriers. While there are LCC options for short-haul routes, there are fewer choices for long-haul flights.

When consumer options decrease, suppliers naturally gain the upper hand. The most powerful tool is pricing. Since the merger announcement, concerns about price increases due to monopoly have been rampant, but Korean Air has repeatedly emphasized that there will be no price hikes. They explain that airfare prices must be reported to the Ministry of Land, Infrastructure and Transport (MOLIT), so they cannot raise prices arbitrarily.

However, the prices reported to MOLIT are a kind of ‘list price.’ We do not have access to these list prices. Airfare is what is called ‘dynamic pricing.’ Prices change in real time depending on the remaining time until departure and the number of available seats on the aircraft. Airlines can freely set ticket prices as long as they do not exceed the prices reported to MOLIT when launching new routes. It is common for prices to rise while a customer checks other airlines’ prices and returns to complete the purchase.

In reality, airlines can adjust discount rates to charge whatever price they want. Even if the list price does not increase, the actual amount paid from consumers’ wallets can rise significantly. Most consumers, except for a very small number who pay the full list price, may feel that airfare prices have increased.

There is also a counterargument that it is not easy to raise prices recklessly because foreign airlines are still competing. However, everyone tends to prefer their domestic airlines, with whom communication is easier. Of course, savvy consumers will carefully balance service quality and price levels to make their choices. But expecting everyone to be that savvy is excessively burdensome. Now, unless everyone puts their heads together, the likelihood of paying higher ticket prices than before has significantly increased.

Regulatory oversight also has its limits. Intervening in every price is labor-intensive and does not align with global aviation industry trends. Therefore, at minimum, oversight should be thorough, and competition should be intensified. Efforts must continue to encourage airlines like Air Premia and T’way Air, which operate long-haul routes, to enhance their competitiveness through incentives and penalties. Foreign airlines should also be strictly managed and guided to ensure higher service quality. Only then will Korean Air provide services worth the ticket price while building global competitiveness. This is the path to truly establishing itself as Korea’s representative ‘mega carrier.’