South Korea’s flag carrier Korean Air Lines Co. signed a joint venture agreement with the world’s largest carrier Delta Air Lines Inc. on Friday, a move that is expected to help them not only strengthen their presence in Asia-Pacific routes but also beat back the growing threat from low-cost carriers (LCCs) in the long-haul market.

The joint venture agreement - which was signed on Friday (local time) at Wilshire Grand Center in Downtown Los Angeles in California, the United States - will allow the two carriers to promote joint operations in about 24 Asia-Pacific routes connecting major destinations in Asia, possibly including Korea, Japan, and Hong Kong, and in the United States and to share costs and revenue. With the agreement, Korean Air and Delta Air are expected to have broader access to about 290 cities in the Americas and 80 cities in Asia that are currently operated by the two carriers.

In March, the two signed a memorandum of understanding (MOU) on the JV partnership.

A joint venture is considered the strongest form of marketing agreement in the global aviation industry. Code sharing, lowest level of aviation arrangement, allows carriers to jointly sell seats of their flights only, while an alliance arrangement, an upgrade from the code sharing agreement, allows partnering companies to share mileage and lounge services. A joint venture includes more than code sharing and alliance arrangements.

All these aviation service agreements require approval from each country’s transportation authorizations that will review whether the arrangements are not anti-competitive. In Korea, the two airlines need to get the final nod from the Ministry of Land, Infrastructure and Transport and the Fair Trade Commission.

Currently, Korean Air flies out from 12 destinations in the U.S. including Washington, New York, and Atlanta, to Incheon while Delta Air operates 12 routes from Seattle, Detroit, and LA, to Incheon, Tokyo, and Hong Kong. The two parties plan to jointly manage the routes and reduce overlapping or similar flight schedules while expanding the number of flights with higher demand in a move to provide more options to passengers.

Once they obtain authorization, the new agreement that should help them diversify their Asia Pacific routes is expected to increase demand for flight transfers via Incheon International Airport and help air travelers spend less transit time.

Korean Air’s decision to form the JV agreement with Delta comes before the opening of the new passenger Terminal 2 in Incheon International Airport due later this year, which, Cho Yang-ho, chairman of Hanjin Group, the owner of Korean Air, expected, would significantly boost demand for flight transfers via Incheon International Airport. With more air travelers transferring, Incheon International Airport would gain competitiveness as a hub airport in Northeast Asia, contributing to the development of Korea’s aviation industry, Cho said after the deal was signed.

Ed Bastian, chief executive of Delta Air, also expressed his high hopes on the new arrangement, saying that the shared network of the two carriers will allow more convenient schedule of flights connecting the U.S. and Asia.

In addition, market analysts expect that the latest joint partnership will help the two airline giants fend off the growing challenge by budget carriers that have been rapidly expanding their presence even in the long-haul, high-profit flight market. Korean LCCs have recently signed air alliances with Chinese and Southeast Asian counterparts to aggressive expand their presence in the mid- and long-haul flight market.

By Kim Jung-hwan

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