FTC orders Korean Air to revise mileage swap ratio in Asiana merger

The Fair Trade Commission rejected Korean Air's proposed mileage integration with Asiana Airlines on Thursday and ordered it to revise and supplement the ratio and usage options.

Korean Air and Asiana Airlines' planes are stationed at Incheon International Airport. [YONHAP]

The Fair Trade Commission (FTC) rejected Korean Air's proposed mileage integration with Asiana Airlines on Thursday and ordered it to revise and supplement the ratio and usage options.

The antitrust watchdog said the plan was not adequate enough to initiate a full review, citing "a lack of clarity on the swap ratio" and "limited mile usage options" compared to those previously offered by Asiana Airlines.

It also backed its dismissal, saying that the plan must "protect the trust of Asiana customers and ensure that they do not suffer any disadvantages," adding that "the rights and interests of both Korean Air and Asiana Airlines customers must be safeguarded in a balanced manner."

The mileage swap ratio is one of the key conditions for regulatory approval of the merger — also the issue of greatest concern for many customers after Korean Air acquired 63.9 percent of compatriot Asiana on Dec. 12 to accomplish its long-anticipated move by the end of 2026.

Though the exact swap ratio has not been disclosed, the key point of contention was likely the proposed rate for converting miles earned through mechanisms other than flights, such as the usage of credit cards and hotel stays.

Korean Air is planning to implement a rate “lower than the 1:1 ratio for those earned through channels other than flights," an executive at Korean Air told the Korea JoongAng Daily on condition of anonymity.

Korean Air unveiled its new logo on March 11. [NEWS1]

Though the standard varies for each product or service, one Korean Air mileage point is earned for every 1,500 won ($1.10) spent, while it only takes 1,000 won to accrue one Asiana mile.

Market watchers speculate a 1:0.7 conversion ratio, but such a move could fuel dissatisfaction among Asiana Airlines customers, who may feel shortchanged. If a 1:1 ratio is applied, likewise, it could prompt criticism of disenfranchising Korean Air customers who primarily earned miles through its credit cards.

In the case of those accumulated through flights, a one-to-one ratio is emerging as the most viable and balanced option under consideration, as the two airlines have minimal variance in the methodologies employed for calculating flight mileage under the International Air Transport Association’s standard city-pair distance calculations.

"In line with the FTC's request, we will continue to participate in discussions and cooperate closely throughout the process," Korean Air promptly responded. "This marks the first step toward establishing a unified mileage program. We intend to actively engage in the process with an open and receptive approach to ensure that the integration plan meets the expectations of air travel consumers."

The FTC's rejection could potentially undermine Korean Air’s ambitious plan to launch the merged entity by October of next year after running Asiana as a subsidiary for two years.

Unused Korean Air miles stood at 2.55 trillion won as of the end of September last year, which was reflected as deferred revenue, a type of liability, in the carrier's financial statements. Asiana’s came in at 981.9 billion won.

Walter Cho, CEO and chairman of Korean Air, introduces the company's new logo and livery during a press conference at the company’s headquarters in Gangseo District, western Seoul, on March 11. [KOREAN AIR]

BY SARAH CHEA [chea.sarah@joongang.co.kr]